Posted on: 29 May 2017
When a car accident occurs, the loan for the car can be seriously affected. In many instances, a person may end up getting stuck with excessive payments or an increased insurance rate. Here is what needs to be known about this difficult and frustrating situation:
The Lender Is Paid First After An Accident
When a car is totaled after a car accident, repayment on the car loan can be complicated. For example, if the car still has a certain amount of money left over on its loan, the lender is likely to get covered for the cost owed, up to the actual value of the car. So if a car is worth $75,000 when it is totaled and the lender is owed $50,000, they would get that money.
The rest of the money could then go to the person who received the loan. While frustrating, this practice does have its advantages. For example, the person no longer owes anything on the loan and can use the money they received as a down payment for a replacement vehicle. However, if the car is not totaled, it may be necessary to tweak the loan amount.
Refinance The Loan, If Necessary
If after an accident the car is still capable of being driven after repairs, it isn't a bad idea to refinance a loan. Why? A car, after such an accident, has typically lost some of its value. However, the person who took out the loan is still paying a loan to the initial value of the car. Refinancing can help decrease payments and help a person save up for a new car.
The disadvantage of this approach is that refinancing often decreases the monthly payments, but it may extend how long a person pays off the car. With wise saving, though, it is possible to pay off a refinanced loan and get ready to purchase another vehicle. Until then, it is important to decrease the amount of money paid in insurance.
Avoiding Excessive Insurance Rates
After a car accident, insurance rates typically go up by about 1.33 times the initial cost. So if a person paid about $2,000 for their insurance in a year, the rate would go up to $2,660. When insurance rates go up, it can affect the cost of the loan repayment plan. As a result, it is important to find a way to avoid this kind of excessive insurance cost.
Avoiding this situation requires proving that the person in the accident was not to blame and that they are a safe driver. Sometimes, a lawsuit can help sort out this situation. Typically, though, it is possible to decrease insurance payments to decrease the amount a person has to pay. This approach is double-sided, though, as it can cause a person to pay more in another accident.
By following these simple guidelines, it is possible to avoid paying too much in vehicle loans after a car accident. Depending on the severity of the incidents, it may not be possible to avoid paying extra. However, these steps help avoid an increase that is too severe for a person's ability to pay.Share