As longer car loans get more popular, many drivers are more likely to owe more on a car than it's worth.
If you get in an accident, you're still stuck paying the loan. That's why some turn to something called gap insurance or loan lease payoff.
More than half of all car loans are for more than five years. Amanda May has one of them. May is a single mom who is sharing her mom's car now.
Her car, a Murano, was totalled in an accident. But she had insurance.
"They offered me 9000," May said of her insurance company. But May owes $14,000.
Still, May wasn't worried because she bought extra insurance on her insurance company's app.
"You can go on there and select the coverages that you prefer," said May.
"On the app it says gap loan lease pay off and I thought that's what I need."
After the accident, May found out loan lease payoff insurance was not what she thought it was.
"I said, oh I have gap insurance to cover my loan," May said to her insurance company. "And she goes well we cover 25% of the market value."
When May checked her declarations page, she realized she wasn't covered fully. May would get 25% of what her car was worth at the time, not the full gap between what it was worth and what she owed.
"My heart sank, said May. "I still owe $2,700 on the vehicle."
Now May wants to warn others drivers to be careful. "Read all your fineprint," said May, " Before you sign."
May says her bank won't give her another car loan until she pays off the current loan on her Murano, so she can't buy another car.
For more information on buying auto insurance, check out the Texas Department of Insurance.
A spokesperson for TDI told us:
"If the repair estimates are more than your car is worth, the insurance company will likely total your car and pay you its actual cash value rather than pay to fix it. Insurance companies use various sources for determining the value of your car. Ask the company what source it used to determine your car's value. The company might not have considered your car's condition, special features, or value on the local market when it calculated its settlement offer. Be prepared to negotiate with the company to get what you think is a fair deal. A company might raise its offer if you can show that your car would sell for a higher price in your area. Get written price quotes for a similar car from several used car dealers, or look in the classified section of your local newspaper for used car prices. If you'd prefer to have your vehicle repaired instead of totaled, you can keep your car if you are willing to subtract its salvage value from the insurance settlement. Make sure the cost to repair the car will not exceed the car's actual cash value. To find out the salvage value, contact local salvage yards for estimates."
