What Happens If You Wreck a Leased Car?
There are some very specific things that need to be done if a leased car is involved in an accident
First, call 911 and report the accident to the police, even if relatively minor — and even if you are at fault. A police report is important in resolving disputes and establishing facts and fault in an accident situation. Insurance companies want to see police reports.
Second, call your insurance company. Even if the accident was not your fault, your own insurance company can help make the process of filing your claim against the other driver and his/her insurance company much smoother. If the other driver was uninsured or underinsured, your insurance company will take care of the problem — assuming you have appropriate insurance yourself.
Third, call your lease finance company, especially if the vehicle is declared a total loss (“totaled”). They will want to know that their vehicle has been destroyed and will expect to hear from an insurance company — either yours or the at-fault party’s.
If the vehicle can be repaired
If your vehicle can be repaired, make sure the work will be done by a professional body shop that has been approved by the insurance company. It also helps if the shop is recognized and authorized as a repair shop for your particular brand of vehicle. Your dealer can help you locate a shop.
If the vehicle is totaled
If your vehicle has been declared a total loss by the insurance company, it means they consider the repair costs to exceed a reasonable percentage of the vehicle’s value, usually about 70%. In this case, the insurance company writes a check to your lease finance company, not to you, for the market value of the vehicle.
If you are so fortunate that your lease buyout balance exceeds the insurance company’s payout, the lease company may refund the difference to you, less any charges or late payments.
However … this is rarely the case with leases. In most cases, the insurance company payout is less than the lease balance, leaving a deficiency that you would be responsible for — except that you are saved by the fact that your lease almost certainly came with GAP insurance, which pays off that deficiency. In your lease contract, it probably isn’t called an insurance — it’s called a “waiver of responsibility in case of loss.”
A disturbing trend with car lease finance companies has been noticed recently. First, there is a growing practice to not include GAP coverage or “waiver of responsibility” clauses in new lease contracts. Second, if insurance payoff exceeds the amount of the lease payoff, lease companies are now more likely to keep the excess money and not refund it to customers as has been the case in past years.
So where does this leave you?
In the case where your vehicle can be repaired, you have the repairs made, continue your lease as normal, and return or purchase it at lease-end.
However, there’s one note of caution. Since your vehicle has been involved in an accident, it’s trade and resale value may be diminished. Although the insurance company may have made a “diminished value” payment to you or the lease company, if you try to trade or sell the leased car, a dealer or potential buyer may use the accident as a way to low-ball the price. By returning the car, or buying it at lease-end, you bypass those potential problems. Do not be tempted to end the lease early as you will suffer the value loss due to the accident.
In the case where a vehicle is totaled, you are simply left without a car — the same as you would have been later when you returned the car to your lease company. If, by chance, your vehicle was already over your total mileage limit at the time of the accident, there have been cases in which the lease company attempted to charge the lessee for those extra miles, just as would have happened on a lease-end return. It doesn’t seem fair but the lease company may see it otherwise.
If you’ll need a replacement car
If your leased vehicle is totaled and you need a new replacement vehicle, you’ll need to start all over with leasing another new vehicle or buying a new or used vehicle. If buying new or used, we recommend using our Car Deal Finder service to locate vehicles at dealers near you, at the best local prices.
Good insurance is important
Having good insurance, not just cheap insurance, is the best way to avoid problems in the unfortunate case that your leased vehicle is involved in an accident. Even if the accident was not your fault, a good insurance company will go to bat for you and help you get a fair settlement.
Never cancel or reduce your insurance on a leased car beyond the coverage required in your lease contract. It violates your contract and is considered a “default” which allows the lease company to repossess the car and charge you for the remaining balance — very expensive. Your insurance company will notify your lease finance company the moment this happens.
Summary
In case of an accident in a leased vehicle, call 911 first, your insurance company second, and your lease company third. What happens next depends on the severity of the accident, the cost of repairs, and your insurance coverage. In some cases, you can end up owing money to the lease company, just as you might if you had an upside down car loan.