How Vehicle Depreciation After an Accident Affects Your Auto Loan

Car accidents are stressful situations to find yourself in. In addition to dealing with the physical and mental trauma that may have been inflicted, there is also a fair amount of paperwork to manage—especially if your car is not yet fully paid off.

When a car (any car, regardless of its loan status) is involved in an accident, its value automatically decreases. So, if you haven’t finished paying off your vehicle and it gets involved in an accident, how does that impact your auto loan?

If the accident was not your fault, you may be able to file a diminished value claim. This will drop your auto loan rate and hopefully help you pay your car off faster if it's worth less now than it was prior to the accident.

There are a few things to know when it comes to managing auto loans after an accident. Below, we’ll guide you through how these two things intersect and what to do if it happens to you.

Understanding Depreciation, Accidents, And Auto Insurance

All cars depreciate over time. Even if you keep yours in pristine condition, the simple act of driving it will inevitably contribute to its depreciation. So, when it comes to an accident or other type of major physical damage, the value is going to decrease further.

Cars that are financed and haven’t been fully paid off yet must be accounted for after an accident. Until your loan is paid off in full, your vehicle still technically belongs to the financier, which means you will still need to pay the outstanding balance of your loan.

Auto insurance companies need to take depreciation into account. If you ever want to resell your car, even if it is repaired into perfect condition, the amount you charge will need to be lowered—people just aren’t willing to pay as much for cars that have been previously damaged.

How To Manage Vehicle Depreciation And Auto Fees After An Accident

If your vehicle is involved in a car accident, its value is going to decrease. You’re still responsible for paying off your loan, but if the damage was not your fault, you may be able to file for a diminished value claim, helping you pay your outstanding balance a little faster.

There are ways for you to take control of a situation like this and minimize what you owe your vehicle’s financier. Here are some steps to guide you:

Record relevant accident information

As soon as the accident occurs, it is crucial that you capture all the relevant information. How did the accident transpire, what caused it (most importantly—whether it was your fault or someone else’s), and in what ways has your car’s value decreased because of it?

Take photos, write down details, and try to remain as calm as possible. Of course, if anyone, including yourself, is hurt, your safety takes priority. But the sooner you can capture this information, the better.

Gather the contact details of other involved parties

If other people or businesses are involved in the accident, you will likely need their contact information to proceed with any necessary insurance claims.

Their contact information will help you file an official report with the police and your auto loan provider, adding essential evidence to support your claim.

Report the incident to the police

Unless your car accident was caused by some kind of internal vehicle damage and nobody has been hurt, you likely need to report the accident at your local police station.

By opening a case, you’ll get a police report that you can use when filing your diminished value claim with your loan provider. If you suffered a personal injury, a lawyer will need this report to begin the claims process against the liable party.

Contact your auto loan provider

Once you have gathered the necessary information and reported the accident to the police, you can go ahead and contact your auto loan provider.

At this point, they’ll want to understand what caused the accident to ascertain whether it was due to an internal vehicle issue, insufficient maintenance, or improper driving behavior. Every detail you can provide will make it easier for you to file your claim.

When you contact your loan provider, you can also take the opportunity to ask questions about vehicle depreciation, accident procedures, and the current state of your auto loan.

Make a diminished value claim

A diminished value claim is a claim that states your car’s value has significantly decreased due to an accident or incident of some kind. A successful claim can result in a lower auto loan outstanding balance.

There are three main types of diminished value claims:

• Immediate: An immediate diminished value claim is what you would file for if the value decrease was straightforward, obvious, and not the driver’s fault.
• Inherent: An inherent diminished value claim involves asking your provider to compensate you for the difference between your vehicle’s value between the accident and the subsequent repairs.
• Repair-related: Faulty parts and incomplete repairs can cause just as much damage as the above factors. This is the ideal diminished value claim because the incomplete repairs will make filing for compensation or a lower loan rate easier.

Each vehicle is unique, and dealing with its depreciation after an accident can be challenging. But by asking the right questions and speaking with your provider, you can sort it out before getting back on the road.

Unfortunately, regardless of how your vehicle is damaged during an accident, its value will automatically depreciate, thus affecting your auto loan. The level of depreciation and loan cost adjustment depends on the extent of the damage and the state of the vehicle before the accident.

An Unavoidable Expense

The bottom line is that if you haven’t paid off your auto loan yet and your car gets involved in an accident, you will still need to pay the outstanding balance, plus depreciation in the long run. However, you can minimize costs by following the right post-accident protocol and taking good care of your vehicle.