I have a family member who is on some hard times right now. He was able to get a car loan through a bank with a co-signer (my late father) about a year ago and was able to own a decent car for the first time in his life. He had his first ever accident last week and his car was totaled by the insurance company. The problem is that after the bank gets the settlement, he will be short about $1500 of what he owes.

Is there a chance the bank write would off the balance? He has good payment history with the loan. If not, I guess he will have to roll that outstanding balance into a new car loan. I told him that he won't be able to use a bank and that his only option is the secondary loan market through a used car lot that will finance people with bad or no credit history.

Any advice y'all got, I'm listening. This is uncharted waters for me.

Dr. B

Doc, is that $1500 after the deductible has been deducted?

I don't know. He just told me what his loan balance is and what the insurance is going to give him for his car. I hadn't thought about the deductible part.

Dr. B

If he can't stroke a $1500 check, he's not the type person that needs loans, of any kind. He needs to be driving a $1500 car for his next ride.
Nobody much does that though.

He'll get somebody to give him a car, and take the chance.

Was the accident his fault? if not then he could likely get it paid off.

Also, it's not necessarily absolute that he has to go through the secondary market to get a loan. If he has a credit score of 600 or better he can probably go to a credit union and get a loan.

Banks offer GAP insurance on car loans for this reason, but I'm not sure if he would have added that into his original loan.

Yeah, I learned about GAP insurance about 20 years ago when I was young and dumb and went and bought a brand new truck off the lot financed with nothing down and then totaled it a few months later. Needless to say, the replacement I bought had GAP insurance!

His insurance company or someone else? He can likely get them to pay up depending on the value of the car and other accident details.

He did not. He's regretting that now.

Dr. B

Yes it was.

Dr. B

Lots of really good people can't "stroke " a check for $1500 at any given time....I don't see where that means they shouldn't be able to get a loan.

I don't doubt he'll be able to. Just saying he probably shouldn't. Car loans are almost certainly one of the easiest ways to get in financial trouble. Also easy to avoid by driving a beater. Not many folks want to though.

Don't let him accept anything from the insurance company less than pay off. Get his bank involved if necessary.

To answer your question. 90% of the time, the bank will write that $1,500 off. It does depend on the balance of the loan. If that is a high percentage of what was owed, they are less likely to forgive it. The smaller the percentage of the total loan owed, the more likely they are to forgive it.

This. Tell him to demand the payoff.

^^^ Never just accept the first offer the insurance company offers. It will always be in their favor. May have to do some research to get an educated value on what the car was worth prior to being totaled. The level of how redneck he gets with his demanding them for the pay off goes up a lot if the accident was not his fault.

Just because someone is upside down doesn't mean the insurance company has to pay the full layoff. They owe him for the value of his vehicle. Tough luck if your upside down. That's his fault.

Why should he be paid more than what his car is worth? What world are you living in? Lots of people are upside down because they buy car they can't afford and don't put money down. I see it almost every week when I total a car. It's not my problem though, I didn't make them upside down. You people act like insurance companies are just out to screw people should try using a company that is reputable and not the cheapest option available.

He is owed the value of his vehicle regardless of liability.

We did. Of course, him not knowing any better and somewhat desperate, he accepts the offer on the spot. After talking to us, we told him to call them back and say they need to come up. He did and they said it was the best they could do so he dropped it.

Based on what we looked at (KBB, Edmunds, ect) his car was worth at max $8100 or as little as $6500. He owes a little over $8700 due to high interest and I think he got jobbed on what he paid for the car initially. He definitely paid too much. The insurance company offered $7900 minus $500 deductible so bank will get a check for $7400. He's stuck with the $1300. It could be worse. I thought the insurance was gonna come back with something like 6K or less.

Dr. B