Compensation for financed cars with total loss

If If you want to better understand how compensation works for cars financed with total loss, you are in the right place. Read this article until the end and understand how this process works.

Taking out insurance is very advantageous, as the consumer is reimbursed for their losses in the event of a claim.

However, doubts are common, especially regarding compensation for financed cars with total loss.

After all, the car does not exactly belong to the user. Will he receive the compensation amounts?

Most car purchases in Brazil are made through financing.

In March 2019 alone, for example, 178.7 thousand car sales were made on credit.

In addition to being a common purchase condition, this is also one of the biggest sources of doubt, including regarding car insurance.

Among the questions that may arise among these owners is how compensation works for financed cars that suffer a total loss.

The reason is simple: when the car is financed, it does not exactly “belong” to the buyer.

In fact, the user only really owns the car when he has finished paying off the financing.

Until then, the finance company can “take” the vehicle if the installments are not paid, since “part” of the car is your property.

The vehicle is alienated by a car finance company. Want to understand how insurance works in this case? See below.

Image: Getty

How does compensation work for financed cars with total loss?

First of all, we need to ask: do you know what total loss is in auto insurance?

Total loss occurs when the car can no longer be used by the user, and generates full compensation.

There are two situations in which full compensation is paid.

First, when the car is stolen or misappropriated and not recovered by the police.

In a second case, the vehicle suffers an accident, and the damage costs more than 75% of the car's market value.

In this situation, it would not be worth repairing the car.

Therefore, the insurer pays compensation sufficient to purchase a new vehicle.

The first thing that should be clear about compensation for financed cars with a total loss is that it works differently than compensation for total loss of paid-off cars.

This difference occurs for the following reason: in order to receive compensation, the consumer needs to transfer the vehicle from car finance company to the name of the insurer.

In other words, when a car is damaged and compensation is paid for it, it becomes the property of the insurance company.

As if the insurance company had bought the damaged car from you, for the value of a vehicle in perfect condition.

When we talk about a paid-off vehicle, the compensation is paid to the insured, since the vehicle is his.

This is because the process of transferring the vehicle to the company is the simplest.

But, when it comes to alienated cars, there are some procedures that must be followed.

What are the procedures for receiving insurance compensation?

In cases where the vehicle is alienated, the insurer must pay off the vehicle with the finance company or company that financed the car.

Only after the car has been paid off can it be transferred to the name of the insurer.

Then, she will make the compensation payment. If this procedure is not followed, the payment will not be released.

It is worth mentioning that the compensation paid to the consumer is less than the agreed total.

This is because the insurer deducts from the amounts what was paid to the financial institution.

We will explain more about this in the next topic. Keep reading!

Another option when receiving compensation is for the consumer to pay for the financing themselves.

He pays the outstanding amounts to the financing company and transfers the car into his name.

Then, the “sale” is made to the insurance company and the total compensation agreed upon in the insurance policy is received.

However, few people have the money to pay off the financing, so much so that they choose to buy a car in installments.

Furthermore, as the result would be the same as the previous option, it is much more common for the insurer to pay the financing.

How are full compensation payments made for alienated cars?

As mentioned, there are two ways to make compensation payments for repossessed cars.

In the first option, the customer can pay off the vehicle with the financing company and thus receive the full amount of compensation.

In the second option, the insurer must pay off the vehicle with the administrator or financial institution with the compensation money.

So, if there is any money left, it is transferred to the insured. See some examples below.

Example of the first option: José has a car with debt, financed, worth R$80 thousand, according to the Fipe Table.

He still needs to pay R$25,000 to the finance company to be able to pay it off.

His car was a total loss in an accident and he decided to pay R$25,000 to the financing company.

Thus, he will be able to receive compensation of R$80,000 in full.

Example of the second option: in the same model as the previous example, José may find it more convenient for the insurance company to pay off the vehicle with the financing company with whom he negotiated.

In this case, the insurer will pay the amount of R$25,000 to the financing company, and José will receive the difference, in this case, R$55,000.

It is important to remember that compensation only corresponds to the value of the Fipe table if this is the agreement made with the insurer.

The full value of the compensation is described in the insurance policy.

In some cases, it is different from Fipe, or corresponds to a percentage of it.

When requesting compensation, pay attention to what your contract says.

Image: Getty Images

What is warranty replacement?

There is also a third option when it comes to receiving compensation for financed cars that are a total loss.

It can be negotiated if the customer does not have the money to pay off the vehicle, or if their compensation is not sufficient for the insurer to carry out the vehicle discharge with the financier.

In situations like this, the customer can choose to replace the debt car.

This procedure is called warranty replacement. It should be done as follows:

• The insured person goes to the financing company;
• He informs the company that he wants to use the total compensation to purchase a new car to replace the one he lost;
• The customer must purchase a new vehicle to replace the old one;
• With the new car purchased, the old one may have its lien removed;
• The customer will then receive compensation;
• The compensation amounts must be transferred to the financing company immediately afterwards, as payment for the new vehicle.

It is worth mentioning that not all financing companies accept this type of negotiation.

This is due to the risk of the customer “disappearing” with the new car and the compensation money.

But, if this is the best choice for your case, contact the financing company and try the alternative.

What happens when the financing is greater than the full compensation?

It is not uncommon for the financing amount to be greater than the full compensation to be received in the event of a total loss.

In these situations, it is up to the insured to negotiate with the financial institution a way to resolve this issue.

He can even opt for the warranty replacement option, as mentioned in the previous example.

In any case, car insurance does not cover financial losses, only the value of the insured asset.

In other words, if you have a lost car, your compensation will be paid according to the value of the car, not including interest or fees arising from negotiations.

There you go! Now you know everything you need to know about compensation for cars financed with a total loss.

If in doubt, talk to your car finance company and insurance company. Together, you can find the best solution for your situation. alienated vehicle.

Some finance companies even offer auto insurance, such as Porto Seguro financing and Itaú vehicle financing.

Hiring services from the same company can facilitate the entire process mentioned throughout the text.

What if the insurance company doesn't want to pay the insurance claim?

The insurer may not pay the insurance claim in some cases, such as:

• Driver profile incorrectly stated in the contract;
• Driver involved in an accident while driving under the influence;
• The vehicle is driven by an unlicensed driver;
• There is an increase in risk or intentional loss;
• Changes to the vehicle occur without notifying the insurer;
• Between others.

If you feel you have been harmed, you can contact your lawyer or SUSEP. Check your contract and get a better understanding of what you are signing up for, the rules for activating the insurance and when it may be denied.

*Published in: 07/23/2019 and updated on 12/26/2022.