Expert: Richard Hixenbaugh - 10/21/2010

Question
Hi I'm lookin at buyin a car and getting main financing
through a credit union and dealer is financing remaining
balance. He just backed out of financing because fear of
this happening. If car gets in wreck and totalled the credit
union gets paid off but as the 2nd lein holder does he get
paid also ? He didn't think he would get paid just credit
union 1st lein holder so is not wanting to finance remaining
balance. Please let me know if dealer as 2nd lein holder
gets paid or not in case of this situation. Thanks

Answer
Hi Tim,

Neither the 1st or 2nd leinholder are automatically paid off in a total loss. The amount that is paid is what the value of the car is on the day that it is totaled. If you finance the car for longer than 3 years, you will owe more on the car than it is worth for some period of time. The longer the finance terms, the longer the car will be worth less than the payoff figure.

The best way to handle this situation is to have both lienholders listed on the title as lienhholders as well as on your auto insurance. You should also purchase GAP insurance. This will pay for any GAP between what your auto insurance values the car to be and the balance of your loans.

I hope this helps
Richard Hixenbaugh