How Exactly Do Car Payments Work?

I am getting my first car soon. I just moved out NYC and into a suburban area in another state. This means I will be buying a car soon. Might sound stupid... but I never understood how car payments work. Let me explain:

1. Let's say I buy a $16,000 car and I have to pay $200 a month on it.
2. What if I get into an accident and the car is totaled beyond repair... will I still be responsible for paying off that $16,000 car even though it would no longer be in possession?
3. What if I decide to get another car and trade in the $16,000 car... will I still be responsible for paying it off even though it is no longer in my possession?


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Most Helpful Girl

  • You're best bet is to just buy a used car. In a few years that $16,000 car probably won't even be worth half of that.

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Most Helpful Guy

  • If you are leasing the car, or financing the car with the car itself as collateral, you will require insurance on the car. May depend roughly on jurisdiction, but at a minimum, on top of liability insurance etc., you need to have coverage on the amount still owing on the car. You may also require 'gap insurance' if you're not putting money down. That one is if you can't make payments, and the amount you owe is more than the value of the car, it covers that. The dealership can explain those things typically.

    Assuming that, if the car is totalled, basically the insurance pays off the debt, or covers a replacement vehicle, which you continue making payments on.

    If you want to trade in a car you still owe money on, you likely can. The question here is how much you owe vs. the value of the car. If you buy a 16,000 car, and are going to pay it off over say 5 years, one year in, you've probably paid LESS than the depriciation on the car. So you'd actually have to pay money to get out of it. On the other hand, closer to the end of the deal, the amount owed is probably less than the value, and at that point you could trade it in. Lets say you still owed 5000 but it was worth 7000, effectively, the dealer pays you 7000, you give 5000 to the finance company to pay it off, and apply the 2000 to a new vehicle.

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What Girls Said 0

The only opinion from girls was selected the Most Helpful Opinion!

What Guys Said 2

  • for point 2. yes you obviously still have to pay off the car, its totaled. the dealer ain't gonna cover the cost of that car, you are.

    you can't trade in a car that isn't fully paid off, you won't have the pink slip/ownership papers in your possession until you do, so you can't sell it or trade it to someone else unless you do a trade at another dealer and work it out with them. actually I think it has to be the same dealer, although I'm not sure about that, but the main point, if you don't own it, you can't do much with selling it legally.

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  • Yeah they just tack what you owe onto the new cars price

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