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No one wants to pay for a car they don’t own anymore. Learn exactly how that could happen to drivers in one situation. [[{“value”:”
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Car payments are a fact of life for many people, although they aren’t necessarily the most fun thing to spend money on. At least those payments go toward covering the cost of a vehicle that’s necessary to get to school or work or family activities.
Unfortunately, in some cases, drivers could actually get stuck paying off a car they no longer own and cannot use. Here’s how that could happen.
Here’s how drivers could get stuck with car payments on a car they can’t drive
Sadly, it’s not uncommon for drivers to find themselves in a situation where they might have to keep making payments on a car that’s not available to them any longer. This can happen when an auto insurance company cuts a check for a vehicle.
See, auto insurance will pay for a car if it is stolen and not recovered, or if it is damaged or destroyed beyond the point of repair after an accident or other covered loss. But an insurer is typically only going to pay the fair market value at the time of the covered incident.
Many drivers, unfortunately, owe more than what their car is actually worth. In fact, Edmunds indicates 14.7% of people trading in old cars to buy new ones had negative equity, with the average amount owed coming in at $5,341.
The problem is that if an insurer cuts a check for $15,000 and the driver of that car has an outstanding loan balance of $20,000, that lender still has to be repaid for the other $5,000. So the driver who took out the car loan is going to have to keep making payments until the loan is paid off in full, even though the car is no longer theirs.
How to avoid this unpleasant situation
Continuing to spend money on a destroyed or stolen car simply does not make sense for most people — especially since they’ll most likely have to go buy another car once they can no longer drive their old one.
The good news is there’s a way to avoid this. Drivers can make sure they don’t have to spend their hard-earned money on car loan payments for a car that’s gone if they buy gap insurance. Gap insurance pays the difference between what is owed and what the car was worth at the time of a covered loss.
Most insurers offer gap insurance as an add on, and it’s generally not expensive — often around $20 to $40 annually when it’s added onto an existing auto insurance policy. That is a very small price to pay to avoid the potential to get stuck with thousands of dollars left on a car loan after receiving an insurance check.
But gap insurance has to be bought before the accident or incident that destroys or disappears the car. So drivers cannot wait until something goes wrong. Anyone with a car loan they could potentially be underwater on should call their insurer today and make sure they have gap coverage. Having the right insurance could prevent a true financial disaster tomorrow.
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