You must satisfy your car loan even if you no longer have your vehicle, as stated in your loan contract. Even if you can't pay your loan balance, talk to your lender to find out your options. If your lender will not work with you, you may have other options.
Call Your Lender
Assuming you maintained a full-coverage insurance policy on your vehicle before it was totaled (as most lenders require), you shouldn't have to pay your entire loan balance off. Your insurance company pays your lender for the vehicle's market value. If you are out of work or without a car, your bank may work with you to satisfy the loan balance. Go over your funds and budget carefully. Decide the amount of payments you can afford and how long it will take you to pay off your loan balance. Call your lender to discuss your finances and ask for a payment adjustment.
Credit Issues
If you do not pay your loan balance, the loan is reported to the credit bureaus as an open account, which can affect future lending. Late payments also reduce your credit score. If you try to pursue another loan to purchase a different car, it is likely you'll be declined until your loan is satisfied. Unless you have enough income to support two car payments, most lenders require borrowers to trade in a previously financed vehicle or satisfy exisiting car loans before approving an application.
Other Options
If you do need to pursue another loan to purchase a vehicle, work with a dealership to satisfy your old loan. If you owe several thousand dollars or less on your previous loan, a dealer can transfer the balance to a new loan and pay off the old lender. If obtaining a second loan is an issue, call dealers to find one who can work with you. You may have to purchase a new vehicle with rebates to obtain an approval that allows you to roll over another loan balance, but it can be done.
Gap Insurance
In the future, purchase a gap insurance policy to avoid this problem. Gap insurance pays off your loan balance if your vehicle becomes a total loss. In the event that you are upside-down in your loan (or owe more than the car's value), your insurance company still pays the lender for the market value of the vehicle, but gap insurance picks up the rest of the bill. You can purchase this policy from a dealership, your lender or insurance company.
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