What Happens If You Get Into An Accident With A Financed Car?

By Doug Standriff on October 10, 2025

If you’ve recently purchased a car using a loan, you’re likely wondering what would happen if you got into an accident with it. This is a common and valid concern. Unlike owning a vehicle outright, a financed car technically still belongs to the lender until the loan is paid off. That adds a layer of legal and financial complexity to an already stressful situation.

Whether the accident was your fault or not, a collision involving a financed car can raise questions about liability, insurance payouts, car repairs, and loan responsibilities. In this post, we’ll break down how these issues unfold and what you should know to protect your rights and finances after the crash.

The Lender Still Has a Stake in the Vehicle

When a car is financed, the lender is considered the lienholder, meaning they have a legal interest in the vehicle until your loan is completely paid off. This matters in the event of an accident because if the car is damaged or totaled, you’re not the only one affected; your lender’s property is also involved.

If the vehicle is repairable, your insurance provider will usually work with both you and the lender to ensure it’s fixed properly. In most cases, the insurance check will be issued to both parties, and you’ll need the lender’s approval to release funds for repairs. If the vehicle is declared a total loss, the insurance payout will typically go directly to the lender to cover the remaining loan balance.

This situation can be frustrating, especially if the car is totaled but the insurance payout doesn’t cover your full loan amount. In that case, you might still owe money on a car you can no longer drive.

Who Pays for Damages?

The answer to this question depends on who was at fault and the kind of insurance coverage in place. If the other driver caused the crash, their insurance should cover the damages to your financed vehicle. But if you were at fault or if the other driver was uninsured, you’ll need to rely on your own insurance coverage.

Collision coverage is essential if you drive a financed car. In fact, most lenders require it. This type of coverage pays for repairs or replacement of your car after an accident, regardless of who was at fault. If you don’t have collision coverage, you might be stuck paying for repairs or worse, left making monthly payments on a totaled car with no working vehicle.

If you owe more on your loan than the car is worth (a common situation, especially early in the loan term), gap insurance can help. This optional coverage pays the difference between your car’s value and the remaining loan amount if the car is totaled.

What If the Car Is Totaled?

If your financed car is declared a total loss, the insurer will assess the vehicle’s actual cash value and pay that amount to the lienholder. If that payment doesn’t cover your remaining loan, you’ll still be responsible for paying off the balance unless you have gap insurance.

This can create a tough financial situation. Imagine owing $22,000 on a car that’s now only worth $16,000. Without gap insurance, you’re responsible for the $6,000 shortfall, even though the car is gone. This is why many lenders strongly encourage or require borrowers to purchase gap coverage, especially for newer cars that tend to depreciate rapidly.

Who Controls the Repairs?

If the vehicle is repairable, you might assume you have full control over where it’s fixed. But when a lender is involved, they may require that the repairs be done through a licensed or approved auto body shop. They want to ensure the car’s value and safety are preserved, since it’s technically still their property.

In some cases, the insurance company may also limit the repair shops covered under your policy. It’s always best to check your insurance terms and communicate with the lender before authorizing repairs.

What About the Accident’s Legal Consequences?

Beyond the financial aspects, you’ll also need to consider the legal fallout of the accident. If you were injured or caused injuries to others, liability could become a major issue. Your insurance may cover medical expenses and damages, but lawsuits are still possible if the losses exceed policy limits.

It’s also important to document everything after the accident: police reports, insurance claims, photographs, medical treatment, and any conversations with the other driver. Whether you’re pursuing compensation or defending yourself from claims, having strong documentation will help protect your interests.

Handling a Financed Car Accident When You’re Not at Fault

Even if you’re not responsible for the crash, you may still need to deal with your own insurance company initially. That’s because New Jersey follows a no-fault system for car accidents, meaning your own insurer covers your medical bills and some other expenses up to a certain point, regardless of fault.

However, if your injuries are serious, you can step outside the no-fault system and file a lawsuit against the at-fault driver. This could be important if your damages are extensive and your insurance coverage falls short. It also allows you to seek compensation for things like pain and suffering, as well as lost future income.

When it comes to the car itself, the at-fault driver’s insurance is typically responsible for vehicle damage. But if there are delays or disputes, your own collision policy can step in while your insurer seeks reimbursement through subrogation.

How to Protect Yourself After the Crash

After an accident involving a financed car, the most important thing you can do is act quickly. Report the accident to your insurer, review your loan agreement to understand your responsibilities, and contact the lender about the vehicle’s condition. If your car is totaled, request a detailed breakdown of how the insurance payout was applied to your loan.

Also, check whether you have gap insurance. If you do, contact that insurer to open a claim. If not, you may need to make arrangements to continue paying off the loan balance, even if you no longer have the vehicle.

Keep all communication and documentation organized. If a dispute arises with the insurance company or lender, having a paper trail can be critical to protecting yourself and resolving issues efficiently.

Let Bergen Law Help You Navigate the Process

Being in a car accident is difficult enough, and dealing with a financed vehicle adds another layer of stress. Whether you’re facing pressure from your lender, fighting for a fair insurance payout, or trying to figure out who’s liable for what, it helps to have someone in your corner.

At Bergen Law, we’ve spent more than 30 years helping people across New Jersey manage the legal and financial impact of car accidents. As accident attorneys, we understand how to navigate insurance companies, evaluate personal injury claims, and guide you through complex cases involving financed vehicles. If you’ve been injured or are unsure of your rights, don’t wait- contact us today!