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Understanding What Happens If You Total a Leased Car & Other Scenarios 

a car after it's been in an accident that has been totaled

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Reading Time: 7 minutes

Part of having a car is understanding that you’re always at risk of being in a car accident. Accidents happen all the time, whether you’re the best driver in the world or if you just got your license. Typically, if a car is totaled, you get the insurance payout. But, how does that work with other scenarios? For example, what happens if you total a leased car or what happens if you total a car that isn’t fully yours?

What is the Difference Between Buying and Leasing a Car?  

Buying versus leasing: the ongoing decision made at every auto dealership across the country. But, what’s the difference between these two options for cars? It comes down to a simple answer, but we’ll dive further into the details of that answer. If you’re buying a car, you’re taking out a car loan. If you’re leasing a car, you’re making payments on a vehicle to give back after the term ends. There are different upfront costs and information that goes into understanding the difference between the two. 

Making the decision between buying and leasing can be a difficult decision, so we’ll break down what the differences are so you can decide which is best for you.

A woman is typing on a calculator while sitting at a table that's holding her notebook and other various documents.

Buying a Car

When you’re buying a car you’re either paying in full, or putting a down payment and acquiring a car loan. This loan is money borrowed from the bank or a credit union where you’ll make monthly payments until the car is paid off in full. Each payment has interest and principal pricing, all depending on the deal you had when you bought the car. The higher your interest rate is, the more expensive your monthly payment is. In the end, you build equity. Some benefits to buying a car include: 

  • It’s yours at the end of payments
  • You can keep the car as long as you’d like
  • Can treat the car as nicely or poorly (not recommended, though) as you’d like
  • No mileage restrictions 

Leasing a Vehicle

Car prices are rising more and more every year, leaving buyers unable to purchase one. With advancing safety measures only available on the newest cars, customers are switching to leasing a car as an alternative to buying. Leasing a car is cheaper than financing a new vehicle, but at the end of the term, the car is not yours to keep. There’s less flexibility with a leased car, however, because the car is being borrowed instead of being owned. However, since the car is borrowed, it stays under warranty so you don’t have to incur any costly repairs.

Advantages and Disadvantages to Leased Cars

There are definite advantages to leasing a car, such as:

  • Driving the car during the trouble-free period of time
  • Driving the latest model covered with a new-car warranty
  • Some leases include free oil changes and regular scheduled maintenance
  • Latest safety features
  • You don’t have to go through the hassle of selling it
  • Higher priced vehicle with better equipment, that otherwise you might not be able to afford 
  • You can purchase the car after your lease term ends

With those advantages though, there are some disadvantages to having a leased vehicle. These disadvantages include: 

  • Can cost you more than a car loan, given that you’re paying for the car when it depreciates most rapidly
  • If you continue to lease after ending another lease, you will continue to have monthly payments on a car until you switch to purchasing 
  • You have to stay within a certain amount of miles for a leased car. The average allotted mileage is between 10,000 to 15,000, with 12,000 being the most popular option. If you exceed that limit, you’ll have to pay an excess mileage penalty, ranging from 10 cents to 50 cents for every mile. Additionally, you don’t get credit back for going under your mileage. 
  • There is a fee if you return the car in unfavorable conditions. They expect the general wear and tear, but if there are dents and dings, prepare to pay extra money. 
  • There are termination fees and penalties if you try to end your contract early, and oftentimes they’re due all at once. 
  • While the warranty covers repairs, it won’t cover tires. 

man holding cell phone while driving in car

Now, Let’s Talk About Getting in a Car Accident

Accidents happen. That’s the line we’ve been fed over and over since early childhood. Car accidents are no different! They happen everyday, whether or not you’re at fault. When you get into an accident, the first thing that will be asked is a proof of insurance. Car insurance covers a multitude of different things: accidents included. But, what happens with a leased car? What happens if you total a leased car? That’s when it can get a little tricky. Owning and insuring a car is much more straightforward, but having a leased car can complicate things when it comes to bad accidents. 

Insuring a Leased Vehicle

Let’s get this straight: whether you own or lease a car, you need to insure it. There are going to be special considerations for coverage if you’re in an accident in a leased vehicle. Additionally, there are different forms of auto insurance. These coverages are  liability coverage and comprehensive coverage.

Liability coverage is the basic coverage that most states require. Liability coverage only pays out for injuries and damage to the other party. For example, if you’re at fault for an accident, your insurance will pay for the car’s damage and any injuries. But, this does not cover damage to your car or injuries to yourself or your passengers. 

On the other hand, there’s a heftier form of insurance. Comprehensive coverage gives you protection against vandalism, fire, severe weather, and thieves. With this form of coverage, you’re covered against any damage around your vehicle. This includes hailstorms and break ins. To get the best coverage, you’ll want to set a deductible level that makes the most sense for your needs. An insurance agent can help you price out the accurate value of your car and equipment for coverage. But remember, as your deductible goes down, your monthly premium goes up. 

female customer service monitoring home security

Filling a Claim

Before anything else happens, you need to file a claim. You can do this within a couple days of the accident, but like most things: the sooner the better. If you’re filing a claim against someone else, you need to let your insurance know who the other driver is. Some important details you’ll need are the name, address, license plate number, and insurance policy details. Additionally, if you took photos of the accident, submit them with the timestamp to your insurance carrier. Make sure to have the details of what happened before, during and after a collision. Your carrier and the other driver’s carrier will ask you questions about it, so make sure to have your facts and story straight. 

You will talk to both your insurance carrier and their insurance carrier. If you have missed days of work due to an injury, make note of that to ensure you’re properly compensated.

Next, you’ll speak with the claims adjuster. They will go over the information of the claim and decide how much money should be paid and to whom the money goes to. They manage the case for the insurance company and take steps to settle the matter. Some work with photos, and others need to physically see the vehicle. If the vehicle needs to be totaled, you’ll find out through them.  

Not sure if you should file? Read our guide of understanding when to file and when not to file an insurance claim.

Understanding What a Totaled Car Means

An insurance company looks at the value of your car and compares it to the cost to repair it. If the repair cost is the same value or more than the value of your car, it will likely be considered as totaled. Make sure to ask your insurance company what source was used in deciding the value. 

If you believe that your car is worth more than the insurance company decided, you can try to negotiate. To negotiate, have quotes from used car dealers, view prices online, and document any custom features or parts on your car.

Young woman making phone call after accident

What Happens if you Total a Leased Car?

Totaling a leased car is a different ballgame than totaling a car that you have a car loan on. If you have a car loan, you’ll be compensated for the value of your car. So what happens if you total a leased car? If you have a leased car, you’ll need to notify the leasing company and your insurance company. Like before, the sooner you file the better. Some companies require you to do it within a few days. In the case of leased cars, your insurance will pay you for the current value of the car. However, you’ll need to pay the remaining money to the leasing company for the remaining payments under the lease agreement. 

You are still legally obligated to pay out the monthly loan amount until the terms of your contract are paid off. Just remember, if your insurance pays you out for the total loss, you’re legally obligated to pay that money to the leasing company. You cannot keep the total amount for yourself. 

Hand holding phone while driving

Not Insured? Keep Reading For More Information

We understand that having insurance isn’t the easiest thing to understand and find. That’s what ONIT is for. We have the products and technology you need to get the most out of your insurance. We work with large and small companies, helping you find the best policy to fit your needs. Visit us online to learn more, or give us a call at 1-833-433-0331 today to find out how ONIT can help you. 

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