When High Repair Costs Total Your Car, What Happens to Your Loan?

Car repairs can be unplanned and pricey, and today’s expensive new car prices and replacement parts costs are making them even pricier. While the old adage “Buyer Beware” still holds true for car buyers, the saying, “Buyer Be Ready” might be more relevant.

Rising Prices All Around

In 2017, motor vehicle repair prices were 61.07 percent higher as compared to 2000, according to U.S. Bureau of Labor Statistics data. This comes as the average new car sticker price is more than $36,000, according to Kelley Blue Book. Factor in 86 percent of new car buyers taking out a loan to make the purchase and you have an expensive investment.

If these new cars endure damage from an accident, get ready to shell out more money for repairs. Why the greater expense these days? This comes from replacement costs for technology-based safety features such as blind-spot warning systems with sensors, camera-embedded bumpers, and airbags.

But it can be worse to own an older car with a lower value as insurance adjusters might consider a car’s damage as totaled — even with little car body damage. A totaled vehicle can be defined as repair costs plus scrap value either equals or exceeds a car’s pre-accident value, according to Insurance.com. In cases like this, insurance payouts might not fully cover the cost of a replacement — and your car loan won’t disappear on its own.

Keep Paying the Auto Loan

For vehicle owners with an outstanding car loan, there will be no loan forgiveness with a totaled car. Insurance.com noted if a car has been totaled and the amount due on the loan is greater than the car’s value, the insurance company will pay out the car’s actual cash value (defined as the market value prior to damage from the accident). But it won’t pay more than the car’s value when it is a total loss.

Say you’re carrying a $20,000 car loan on a car valued at $15,000 when an accident occurred, plus a $1,000 insurance deductible. Insurance might pay you $14,000 for the totaled car. However, the check will go to the car owner and lender to be signed and mailed to the finance company — or sometimes it goes straight to the bank. In the end, the lender will be waiting for the $6,000 loan balance from the car owner’s pocket.

Expanding Black Market for Car Parts

Amid high prices from technological components, critical car parts are also rising and spurring a jump in car thefts: a 4 percent-plus rise in 2017, according to recent data from the National Insurance Crime Bureau. “Chop-shop rings” are breaking down parts from stolen cars and then selling them on the black market.

This is because the parts are usually worth more than the vehicle as a whole and are easier to unload, NICB Senior Vice President and COO Jim Schweitzer said in a recent press release. “That’s why we see so many thefts of key items like wheels and tires and tailgates…there’s always a market for them.”

Just how expensive are parts? A stolen 2016 Toyota Camry midsize sedan (recognized as 2016’s most-stolen new car), could carry an almost $11,000 average repair bill thanks to its expensive parts ($1,700 for a quarter panel, anyone?), according to the NICB.

It gets worse. For a 2016 GMC Sierra pickup truck, its total cost for replacement sits at $21,000.

What’s a consumer to do? For one, you can consider adding gap insurance to your car insurance policy. That might ensure you’re paid the difference between the actual cash value and the balance you owe on a lease or loan.

But the next time you get lured by a shiny new (or used) car, keep in mind the price tag at the start could turn into an even greater one as time goes on.