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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 8, 2021

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In short, yes, the debt must be repaid. Borrowers need to remember that the now totaled car was collateral in an auto title loan agreement.

In auto title loan agreements, borrowers get cash in exchange for letting their car act as collateral. As part of the auto title loan agreements, most lenders require borrowers to have liability insurance. This insurance serves to protect both lenders and borrowers in the event that a vehicle is damaged.

If a collateralized vehicle gets so damaged in an accident that it is declared totaled (which means that it is beyond repair), then the liability insurance company will pay off the auto title loan. Unfortunately, if the borrower and lender did not use liability insurance, then the borrower will still be responsible for repayment of the debt.

In the event that there is a lapse in insurance coverage during which the vehicle is totaled, then the borrower is still responsible for repayment.

At this point borrowers should try to negotiate with their lender and explain the situation. While car accidents are all too common, totaling is relatively rare. Lenders should understand this and may accommodate borrowers with a new repayment plan.

Once a vehicle is totaled, there is no collateral left for the auto title loan. As a result lenders may be willing change the financing into a personal loan. A new personal loan may carry different terms than an auto title loan, especially if a borrower has no additional collateral available.

Assuming the borrower wishes to use another car for financing, the lender may simply add the balance to the new loan. The new financing may be capped by the lender so it does not exceed the value of the new car.

Borrowers who have just had their car totaled should contact their lenders and explain what happened. Most lenders offer three months to catch up on payments, but if a borrower has been injured due to the accident then it may be difficult due to medical bills and other expenditures related to the accident.