8

I started financing a 2011 Toyota Camry LE for $11.6K October 2019. I’m 20 years old and I just got my license in September 2019. I’ve been paying $323 a month for full coverage through the General, based on my situation and that being the cheapest quote I got. I had a wreck and flipped my car December 31st, 2019 and there’s mostly cosmetic damage, a shattered windshield and a dented in roof and window frame at the top. I haven’t gotten a good look at it or any pictures and the insurance adjuster hasn’t looked at it yet. Although from what I’ve been told it sounds like it’ll be totaled.

Since my insurance costs so much I didn’t want to pay extra for GAP coverage. The Kelley Blue Book (KBB) value is around $5K, leaving a $6k gap if the car is totaled. Could anyone give some advice on what to do or any ideas on how the insurance payout would happen? Thanks.

  • 13
    If the KBB value is $5K, why did you pay $11.6K? – RonJohn Jan 6 at 0:29
  • 7
    If you bought a car worth $5,000 for $11,600, you have a $6,600 loss from the purchase. There's not going to be anything you can do about that. – David Schwartz Jan 6 at 5:54
  • 2
    @PeteB. I understand that, but at some point you have to say, "I'm not paying 2x the KBB value", and just walk away. – RonJohn Jan 6 at 13:41
  • 2
    If it's "mostly cosmetic damage", why do you believe it'll be considered totaled? – ceejayoz Jan 6 at 14:04
  • 5
    "Dented in roof and window frame", given the fact that your car flipped, sounds like damage to the frame, which is not cosmetic. – chepner Jan 6 at 15:16
10

With no GAP insurance and a loan balance greater than the vehicle's worth, you are personally obligated to pay the difference to the bank.

The insurance company will essentially write a check to your bank for the value they place on your car. Depending on which state you're in, that value may include sales tax and other additions on top of the actual book value of the car - so, the first step is to research how insurance is regulated in your state. If you update your question to include your state, we can help you understand that. This will help you understand what number they give you and how they arrived at it - even if your car is technically only worth $6k, the check may be for more than that.

The second step should be to do your own research on the car's value. Look up the book value of the car in as many places as you can (NADA, KBB, Edmunds, etc). You need to look for the equivalent of the replacement value for the car - that is, what it would cost you to go buy the same car right now. In general, this is listed as a retail price, or a dealer retail price in pricing guides. Make sure you're not basing your research on private party or trade-in values, as they will be significantly lower.

Once you have your research, you can compare it to the number the insurance company offers to pay. If there is a significant difference, you should contact your insurance adjuster and dispute the value. Provide the research you have as evidence. Insurance companies will often adjust their number based on provided evidence. (In general an insurer isn't going to quibble over a small difference in book price, they're generally just happy that you didn't incur a few hundred thousand dollars in injury or other liability when you crashed the car). If the insurer won't budge, consider contacting a lawyer who specializes in auto accident claims, they may be able to get a better response from the insurance company. The key point is, you lose nothing by negotiating hard at this point in the process. Worst case, the number doesn't change. Best case, they eat some of your loss.

Next, after you and the insurance company have settled on a payoff amount, contact your bank. Explain to them that the car is being written off (they will likely already know this). Ask them if they can be flexible on coming up with a payment plan that you are able to meet. People who have wrecked cars are at a very, very high risk of defaulting on loans, and banks know this. They will usually be happy to work with you. They will likely not lower the remaining balance on the loan, but they may be happy to adjust the terms in a way that makes the loan affordable for you to pay off.

Finally, consider this as a life lesson - when you have determined that you need to borrow in order to buy a car, make sure you understand the deal. Besides just considering if the loan is "affordable" for your monthly budget, make sure you understand the loan to value ratio (LTV). That is basically the amount of the loan compared to the value of the car - so if you had a loan of $11k for a car that was worth $11k, your LTV would be 100%. If you had a loan of $11k for a car worth $5.5k, your LTV is 200%. Any number higher than 100% means you are upside down, and you are at risk of getting yourself back into this situation all over again. While some people think it is debatable whether you should borrow for a car in the first place, it's very hard to argue that it makes sense to borrow in a way that puts you upside down on the loan (owing more than it is worth).

That said, many people take out car loans that make them upside down on a regular basis. If you are going to do that, make sure you have a "plan B" for when things go bad. If you can afford it, having cash in the bank for the difference between the car's value and the loan balance makes sense (although, if you have that cash, you should consider making a down payment on the car). Or, take out GAP insurance so you are protected if the car is a loss.

Finally, make sure you're thinking and planning for the long term. While it may seem like you need to have a car right now no matter what, consider what the next 5 or 10 years of life will be like. Make sure you pay off the loan, even if it is tempting to walk away since you no longer have the car. This will protect your credit report and help put you in a better position to lend in the future, if you need to. Also, consider your driving habits and make sure you're doing your best to stay out of trouble. Insurance rates will be very expensive for you right now (as a young male) but as you get older, they will drop significantly. If you can maintain a good driving record, once you're over 25, you may find that Camry is closer to $100 a month to insure.

| improve this answer | |
3

As adults, when we make mistakes, we "write checks" to correct them. Presumably this is what you are in for.

Despite being a common occurrence, borrowing money to purchase a car is generally a bad idea. Cars should be purchased for cash, or at least if financed, the cash to pay off the car should be readily available in a savings account. While you did okay purchasing a sensible used car, it seems like this was more car than you assets dictated. Do you have enough cash to cover the difference? Do you have enough cash to also purchase a car?

In consideration to the comments it is not uncommon for a buyer to way overpay for a car. Once the dealer starts negotiating on monthly payment, you have lost. It would be best to walk out from the car deal. Only negotiate the total price of the car after dealer fees. When paying cash for a car, people tend to negotiate much harder.

As far as advice with dealing with this situation, your best bet is to have cash. Work a second job or overtime, cut spending and save. First you will need to have enough cash to cover the gap between the loan balance and the insurance amount. Second you will need to replace your car. You are best not to put yourself back into this situation and pay cash for your next car.

Dealing with the insurance appraiser is like any other human interaction. Be really nice to them, beg, plead or whatever for a higher appraisal. If you recently did repairs to the car, show them receipts.

Good luck, and know that you will recover from this.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.