I have a friend whose car's engine burned up, the car is a total loss. It wasn't insured at the time, he let his insurance lapse. There is quite a bit of money owing to the finance company on this unusuable. He seems to think he can walk away from it. I said he owes on the car and will have to pay it off. What's the answer? Thanks
Yes, he still owes on the loan. Yes, he can just walk away. Yes, the creditor can note this as a repo on his credit report. Yes, they can come after him for the difference between what he still owes + collection fees - whatever they get for the car (hulk) at auction (the actual amount depends on the contract terms).
There are many nuances to your question, however in general if your friend's credit rating indicates that he could be financially responsible (able to pay), then the creditor will make efforts to hold him financially accountable, up to and including suing and pursuing post-judgment remedies. However, if he looks flat broke, they may not sue, they may sell to a Junk Debt Buyer who will wait and lurk and see if your friend financially recovers to the point where pursuing the debt could be profitable and then they'll pounce.
Karma's a bitch. What if your friend had hit and injured someone? Irresponsible people like that shouldn't be allowed to drive anyway. I try not to be judgmental, but damn!
Overall your friend is still repsonsible for the balance owed on the vehicle. The only chance he may have is to contact the National Transportation Safety Administration and explore if there were a recall for a safety item on this vehicle. Then the auto manufacturer would have some shared liability.
I have two thoughts, First, when I had a car loan, they told me that if I let my insurance lapse, that the finance company buys a policy to protect themselves and I'd have to pay them for it. He should look into that. Second, insurance doesn't really cover a blown engine anyways, does it? I thought it only covers collisions, theft and acts of god (fire, flood, falling branches etc...).
Correct, but a clarification. The insurance that the lienholder buys is the same type of insurance you would have--comprehensive and collision, but only to protect their interest. And they have to get notice that it's uninsured. I don't believe either private insurance or the insurance through the lienholder will pay for an engine fire. You could look into the recall aspect and see if there's a recourse against the manufacturer. Otherwise, as others have pointed out, he's still responsible for the balance.
If the engine "burned up" as in caught fire and had flames and all, the comprehensive coverage might cover it (only your insurance company can tell you for sure). If it just broke and doesn't run any more (e.g. it through a piston), then it probably won't cover it. That said, my insurance company paid me for a new engine when I drove my Jeep underwater and broke the engine (as in broke two out of four piston rods). So insurance might or might not cover the damage...if he had insurance. Since he didn't, all this discussion is academic. While a finance company might be insured against lost, the insurance company who pays the finance company might come after the borrower for subrogation (i.e. to be paid for what they paid to the finance company). So, like I said, sure he can walk away from the car and the loan, but that doesn't mean he's walking away from trouble. That is likely to follow behind very closely.
Now I know why my jeep's insurance is so high LOL. So tell me, did you explain to the insurance company how your jeep came to be underwater?
I was straight up with them (it was pretty hard to hide). I told them I drove it into the water (the puddle didn't look that deep before I went in) and it didn't come out. They said they'd pay this one time but don't let it happen again. Live and learn
I have an associate that works in my state's AG office; he recently mentioned that they get calls for this scenario a lot. Basically your friend is stuck; legally he defaulted on the auto loan contract by not continuing insurance coverage. He needs to read the fine print in his loan. It's too bad as comprehensive insurance does usually cover this, as long as the vehicle was current on inspection requirements, etc. Your friend may want to look into the legalities of his insurance policy, how long has it been since coverage lapsed? Some states have a thirty day period where insurance must cover (if premiums are "paid up").
