Will You Have to Pay It Off if an Insurance Company Totals Your Car & You Have a Warranty?

Your vehicle warranty has nothing to do with an insurance payoff, so expect to pay off the remainder of your loan if you do not have gap insurance or owe more than the vehicle's value. If you purchased an extended warranty, you might be able to cancel the contract and receive a credit toward your loan or money back.

Loan Payoff

If you have collision coverage on your vehicle, which most lenders require, your insurance company pays your vehicle's market value to your lender. If the insurance payout is more than your loan's payoff amount, your lender will return the excess money to you. If you have a lease, you will receive nothing, as the bank owns the vehicle, not you. If your loan balance is more than the car's value, you must continue making payments until your loan is satisfied. Read your bank contract for more information.

Warranty Cancellation

Your vehicle's warranty covers repairs to your vehicle if the car malfunctions, but not body damage or maintenance. Totaled vehicles are covered by your insurance company, not a factory or extended warranty coverage. If you are still under the remainder of a factory warranty, there is no need to cancel it. If you purchased an extended warranty, receiving a partial refund for the amount you paid or used is possible. Call your warranty provider to discuss your cancellation and refund options.

Gap Insurance

If you owe more than your vehicle's insured market value, gap insurance can pay off the remainder of your loan. Gap insurance is an optional purchase, although some leasing banks require the coverage. If you are not sure if you have gap insurance, ask the dealer you purchased from. You can also ask your bank if the coverage was included in your loan, or ask your insurance agent, as the coverage might be included with your policy. Unfortunately, without gap insurance, you are responsible for paying the loan balance.

Payment Arrangements

Depending on the amount you owe to your lender, it may be willing to work out a payment plan with you. If you can't pay off the balance in full, discuss payment options with your lender so you can afford to cover the excess balance and the cost of replacing your transportation. If you pursue another car purchase from a dealership or plan to use the same lender to finance another car, you may be able to carry the loan balance over to a new loan.