What Happens if You Total a Leased Car?

While they are unfortunate, car accidents do happen from time to time. And if you’re leasing your car and happen to get into an accident, then you might wonder what will happen next. Will you lose all of the money that you put into it? Will you ever be able to lease a car again? These are valid questions, so let’s explore them.

Is your leased car a “total loss?”

Tesla accident
Tesla accident | Getty

The first thing you’ll need to find out is if your car is a “total loss.” A total loss is when the cost to repair the car is more than the current market value of the car. In order to determine if whether or not your car is a total loss after an accident, an insurance claims adjuster must inspect it. If the car is deemed a total loss, then your insurance company will pay you out for it according to its market value.

There are many times when the value of the leased car is more than the amount that insurance pays out. In that case, the lessee is responsible for covering the difference in value.

GAP insurance can save you

This is a set-up to illustrate how Andy Lewkowicz Investigator /Collision Reconstructionist does part of his job when it comes to investigating auto insurance fraud.
This is a set-up to illustrate how Andy Lewkowicz Investigator /Collision Reconstructionist does part of his job when it comes to investigating auto insurance fraud. | (Rick Eglinton/Toronto Star via Getty Images)

In the event of a total loss, if your insurance company pays you less than what the car is worth, then you would be responsible to cover that gap in dollar amounts. For example, if the car is worth $15,000, but insurance pays you $13,000, then you’ll need to cover the $2,000 difference. However, if you have GAP insurance – which thankfully, almost every new car lease comes with it – then it will cover that “gap” between the values.

Will I lose all of the money I put into the car?

 The scene of a fatal road accident involving a Volkswagen minivan and a MAZ lorry on the M7 Motorway in the Gorokhovets District
The scene of a fatal road accident involving a Volkswagen minivan and a MAZ lorry on the M7 Motorway in the Gorokhovets District. (Russian Interior Ministry\TASS via Getty Images)

Technically, yes. If you have gap insurance to cover the differential between the car’s value and the insurance payout, then the good news is that you’ll walk away from the situation. But the bad news is that you’ll be out whatever money that you put into the car. That’s right, all those monthly payments, including the down payment, will be gone.

This is why it’s a good idea to put as little of a down payment (cap cost reduction) on a lease as possible. In case you ever get into a car accident and insurance totals it out, you’ll never see that money again.

In fact, Pocket Sense reports that if your leased car is totaled, then you may need to keep making the monthly payments until the title is cleared. Just because you don’t have the car anymore, it doesn’t mean that your lease contract is null and void.

Will I ever be able to lease a car again?

Potential customers walk around a car lot
Potential customers walk around a car lot. | (Liam McBurney/PA Images via Getty Images)

Yes, for sure! Any dealer would love to earn your business when you’re out of a car. Since GAP insurance most likely covered the cost of the car, you’ll be free to buy or lease another car when you’re ready, provided that your credit is good. Just note that your insurance premium might be higher with a newer car and an accident on your record. However, your results may vary.

While getting into a car accident is never fun, the good news is that you’ll be covered if you leased your car. You’ll be able to walk away from it and start again, which can be costly, but as long as you’re ok (along with anyone else involved in the accident), then that’s all that matters.

RELATED: Does Leasing a Car Help Your Credit Score?