Why is My Total Loss Payoff Check Less Than My Auto Loan?

Totaled Car
••• Getty Images/Martin Diebel

Are you disappointed with your total loss payoff check? It is not as uncommon as you might think. Lots of people are underwater on their car loans. Owing more than your car is worth at any time during your car loan, is putting you at risk of receiving a payoff check lower than your auto loan balance.


It is pretty much common knowledge, cars depreciate. You will never get your money back out of a car unless you drive it for 20 years. You are paying a pretty penny for the use of a vehicle whether you finance it or not the minute you drive it off the dealership lot. Your vehicle is most likely insured for Actual Cash Value, aka what it is worth at the time of loss. If you are not able to pay 20% down on your auto loan, you need gap insurance to cover the difference. 

Extended Car Loans

Why do people take out extended car loans? To get a lower payment right? What happens when you make a lower payment? The amount you owe is reduced at a slower rate, often slower than depreciation. Anyone purchasing a car loan with a term longer than 4 years is an ideal candidate for gap insurance. If you owe a lot more than what your total loss payoff check is issued for, you probably have an extended car loan with no gap insurance.

Past Auto Loan

A storm is definitely brewing if you were enticed into wrapping your old car loan in with your new. Your car insurance is not going to pay old debt, even if it is wrapped into your current car loan. A total loss accident means its time to pay up or try to get a lender to wrap the difference of this loan into a new one (which is never recommended). 


Any money paid for a warranty is not covered by a total loss insurance claim. Sorry, insurance companies insure vehicles, not additional coverage plans. So many times, people wrap a warranty into their car loan and think nothing of it. That is until a total loss situation, now you have to pay for a warranty on a car you can no longer drive. Make sure to check into canceling your warranty, a refund is not impossible.

Sales Tax, Title, and Registration 

Taxes and title fees are not so cut and dry. More than half of all the states are required to cover these expenses. It is certainly a good idea to ask your claim's rep if the fees are covered and what restrictions apply. Often these expenses are only covered after another vehicle is purchased and it needs to be within 30 days of the payout. Insure.com lists out each individual state's requirements.

No Down Payment Auto Loans

A great way to get a total loss payout lower than your car loan payoff is to buy a vehicle with no money down. A total loss accident will be your worst nightmare if you do not have gap insurance. Again it comes down to depreciation. Think of it as paying your down payment now vs. at the time of purchase. Believe me, I know this is not what you want to hear. There is really just no easy way to give you the news.