SoFi

For many homeowners who need cash in short order, a second mortgage in the form of a home equity loan or home equity line of credit is a go-to answer.

What’s the point of a second mortgage? It’s a way to fund everything from home improvements to credit card debt payoff, and for some, a HELOC serves as a security blanket.

You can probably think of many things you could use a home equity loan or HELOC for, especially when the rate and terms may be more attractive than those of a cash-out refinance or personal loan.

Just know that you’ll need to have sufficient equity in your home to pull a second mortgage.

What Is a Second Mortgage?

A second mortgage is one typically taken out after your first mortgage. Less commonly, a first and second mortgage may be taken out at the same time in the form of a “piggyback loan.”

Your house serves as collateral.

An “open end” second mortgage is a revolving line of credit that allows you to withdraw money and pay it back as needed, up to an approved limit, over time.

A “closed end” second mortgage is a loan disbursed in a lump sum.

It’s not called a second mortgage just because you probably took it out in that order. The term also refers to the fact that if you can’t make your mortgage payments and your home is sold as a result, the proceeds will go toward paying off your first mortgage and then toward any second mortgage and other liens (if anything is left).

How Does a Second Mortgage Work?

A home equity line of credit (HELOC) and a home equity loan, the two main types of second mortgages, work differently but have a shared purpose: to allow homeowners to borrow against their home equity without having to refinance their first mortgage.

Rates

HELOCs may have lower starting interest rates than home equity loans, although HELOC rates are usually variable — fluctuating over time.

Home equity loans have fixed interest rates.

In general, the choice between a fixed- vs variable-rate loan has no one universal winner.

Costs

Home equity loans and HELOCs come with closing costs and fees of about 2% to 5% of the loan amount, but if you do your research, you may be able to find a lender that will waive some or all of the closing costs.

Some lenders offer a “no-closing-cost HELOC,” but it will usually come with a higher interest rate.

Example of a Second Mortgage

Let’s say you buy a house for $400,000. You make a 20% down payment of $80,000 and borrow $320,000. Over time you whittle the balance to $250,000.

You apply for a second mortgage. A new appraisal puts the value of the home at $525,000.

The current market value of your home, minus anything owed, is your home equity. In this case, it’s $275,000.

So how much home equity can you tap? Often 85%, although some lenders allow more.

Assuming borrowing 85% of your equity, that could give you a home equity loan or credit line of nearly $234,000.

After closing on your loan, the lender will file a lien against your property. This second mortgage will have separate monthly payments.

Types of Second Mortgages

To qualify for a second mortgage, in addition to seeing if you meet a certain home equity threshold, lenders may review your credit score, credit history, employment history, and debt-to-income ratio when determining your rate and loan amount.

Here are details about the two main forms of a second mortgage.

Home Equity Loan

A home equity loan is issued in a lump sum with a fixed interest rate.

Terms may range from five to 30 years.

Recommended: Exploring the Different Types of Home Equity Loans

Home Equity Line of Credit

A HELOC is a revolving line of credit with a maximum borrowing limit.

You can borrow against the credit limit as many times as you want during the draw period, which is often 10 years. The repayment period is usually 20.

Most HELOCs have a variable interest rate. They typically come with yearly and lifetime rate caps.

Second Mortgage vs Refinance: What’s the Difference?

A mortgage refinance involves taking out a home loan that replaces your existing mortgage. Equity-rich homeowners may choose a cash-out refinance, taking out a mortgage for a larger amount than the existing mortgage and receiving the difference in cash.

Taking on a second mortgage leaves your first mortgage intact. It is a separate loan.

To determine your eligibility for refinancing, lenders look at the loan-to-value ratio, in part. Most lenders favor an LTV of 80% or less. (Current loan balance / current appraised value x 100 = LTV)

Even though the rate for a refinance might be lower than that of a home equity loan or HELOC, refinancing means you’re taking out a new loan, so you face mortgage refinancing costs of 2% to 5% of the new loan amount on average.

Homeowners who secured a low mortgage rate will not benefit from a mortgage refinance when the going rate exceeds theirs.

Pros and Cons of a Second Mortgage

Taking out a second mortgage is a big decision, and it can be helpful to know the advantages and potential downsides before diving in.

Pros of a Second Mortgage

Relatively low interest rate. A second mortgage may come with a lower interest rate than debt not secured by collateral, such as credit cards and personal loans. And when rates are on the rise, a cash-out refinance becomes less appetizing.

Access to money for a big expense. People may take out a second mortgage to get the cash needed to pay for a major expense, from home renovations to medical bills.

Mortgage insurance avoidance via piggyback. A homebuyer may take out a first and second mortgage simultaneously to avoid having to pay private mortgage insurance (PMI).

People generally have to pay PMI when they make a down payment on a conventional loan of less than 20% of the home’s value.

A piggyback loan, or second mortgage, can be issued at the same time as the initial home loan and allow a buyer to meet the 20% threshold and avoid paying PMI.

Cons of a Second Mortgage

Potential closing costs and fees. Closing costs come with a home equity loan or HELOC, but some lenders will reduce or waive them if you meet certain conditions. With a HELOC, for example, some lenders will skip closing costs if you keep the credit line open for three years. It’s a good idea to scrutinize lender offers for fees and penalties and compare the APR vs. interest rate.

Rates. Second mortgages may have higher interest rates than first mortgage loans. And the adjustable interest rate of a HELOC means the rate you start out with can increase — or decrease — over time, making payments unpredictable and possibly difficult to afford.

Risk. If your monthly payments become unaffordable, there’s a lot on the line with a second mortgage: You could lose your home.

Must qualify. Taking out a second mortgage isn’t a breeze just because you already have a mortgage. You’ll probably have to jump through similar qualifying hoops in terms of home appraisal and documentation.

Common Reasons to Get a Second Mortgage

Typical uses of second mortgages include the following:

•   Paying off high-interest credit card debt

•   Financing home improvements

•   Making a down payment on a vacation home or investment property

•   As a security measure in uncertain times

•   For a blow-out wedding (or funeral) with a HELOC chunk

•   College costs

Can you use the proceeds for anything? In general, yes, but each lender gets to set its own guidelines. Some lenders, for example, don’t allow second mortgage funds to be used to start a business.

The Takeaway

What’s the point of a second mortgage? A HELOC or home equity loan can provide qualifying homeowners with cash fairly quickly and at a relatively decent rate.

If you’re looking for a way to put some of your home equity to use, see what SoFi has to offer.

In addition to a cash-out refinance, SoFi offers a brokered home equity line of credit, allowing access to 95%, or $500,000, of your home’s equity.

It’s easy to find your rate.

FAQ

Does a second mortgage hurt your credit?

Shopping for a second mortgage can cause a small dip in a credit score, but the score will probably rebound within a year if you make on-time mortgage payments.

How much can you borrow on a second mortgage?

Most lenders will allow you to take about 85% of your home’s equity in a second mortgage. Some allow more.

How long does it take to get a second mortgage?

Applying for and obtaining a HELOC or home equity loan takes an average of two to six weeks.

What are alternatives to getting a second mortgage?

A personal loan is one alternative to a second mortgage. A cash-out refinance is another.

---

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL0922020

Read more

If your car is totaled in an accident, you may expect the insurance payment to come to you as the car’s owner. Not necessarily. If you financed or leased your car, the insurance company will make sure the lender or leaseholder is paid first. You’ll receive whatever remains of the settlement — if anything.

Read on for a breakdown of how the insurance claims process works and who gets the insurance check when a car is totaled.

Getting an Insurance Check for a Totaled Car

Unless your totaled car was only a few months old, or you have new-car replacement coverage, the check you receive from the insurance company probably won’t be enough to replace it with a brand-new model.

If your car is financed or leased, as noted above, the insurance company will first pay off the lender or leaseholder. The car’s owner will receive a check only if any funds remain after the car is paid off.

If you’re not sure what would happen if your car was totaled, it might be time for a personal insurance planning session to review your coverage.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

What Happens if Your Car Is Totaled in an Accident?

After an accident, your insurance company will assign someone called an adjuster to assess your car and estimate the cost of repairs. If the estimated cost of fixing the car is more than the car’s market value, the insurance company may declare it a “total loss.” The same thing may happen if the insurance company determines the car may not be safe to drive even if it were fixed.

Recommended: Insurance Tips for First-time Drivers

How Your Car’s Value Is Determined

The insurance company will determine your car’s “actual cash value” based on its pre-crash condition and what similar models are selling for in your area. They’ll also factor in things like the car’s age, wear and tear (inside and out), mileage, and any optional equipment you’ve added. (You can learn more about the lingo discussed here in our guide to car insurance terms.)

Learn more about how much auto insurance will pay for a totaled car.

Recommended: How to Get Car Insurance

What if the Accident Wasn’t Your Fault?

If another insured driver is found at-fault for the accident that damaged your car, that person’s insurance should pay the claim — and your insurance deductible won’t come into play.

However, you should expect to pay your deductible amount if:

•   You’re responsible for an accident

•   The fault is shared

•   No one is at-fault for the damage to your vehicle. For example, a tree branch or other debris hits your car in a storm

•   The driver who caused the accident is uninsured or underinsured, and your uninsured motorist coverage pays your claim

Learn more about types of deductibles in insurance.

Is a Car Totaled When the Airbags Deploy?

The cost of replacing activated airbags will be considered in the overall cost of repairing your damaged vehicle. However, a vehicle won’t necessarily be declared totaled because the airbags deployed.

Who Decides if Your Car Is Totaled?

People often use the word “totaled” as a general description for a car that’s been badly damaged. But only your insurance company can decide a car is totaled based on its value and the cost of repairs.

What Types of Coverage Will Pay for a Totaled Car?

Drivers are often more concerned about the cost of their monthly premiums than with how much car insurance they really need. But not all types of coverage will pay for a totaled car. After an accident, you’ll need one of the following policies — which should be available from both traditional and online insurance companies — to be reimbursed for a totaled car.

Collision

Collision coverage pays for damage to your vehicle or property. That can include damage caused by crashing into another vehicle or running off the road and into a tree or fence. Even if you’re responsible for the accident, collision coverage will pay for the repairs, minus the deductible amount you’ve chosen.

Comprehensive

Comprehensive coverage pays for losses caused by something other than a collision, such as a weather event, hitting an animal, theft, or vandalism.

Property Damage Liability

Property damage liability coverage pays for damage to your vehicle (and other property) if you’re in an accident and the other driver is found to be at fault.

Uninsured / Underinsured Motorist

If you’re in an accident and the other driver is at fault but isn’t insured or doesn’t have sufficient insurance, uninsured motorist coverage pays for your repairs.

New-Car Replacement

With new-car replacement coverage, if your car is totaled, your insurer will pay to replace it with a brand-new car of the same make and model (minus your deductible).

Gap Coverage

If you owe more on your car loan or lease than what your insurance company says your damaged car is worth, you can end up having to make up the difference. Gap insurance can bridge the gap between your settlement and what you still owe.

Rental Reimbursement

Unless you have a backup vehicle to use until you replace your totaled car, you may have to rent a car. If your auto policy includes rental reimbursement coverage, your insurer may refund your out-of-pocket costs for the rental, but only for a limited time.

Recommended: How To Save on Car Maintenance Costs

Do You Still Have To Make Loan Payments on a Totaled Car?

Even if your vehicle has been declared a total loss, your lender will likely expect you to keep making timely loan payments until the claim is settled. (If you don’t, that can hurt your credit.) So it’s a good idea to stay on top of any paperwork, and to check in with your insurance company and lender regularly to be sure the claims process is on track.

What if the Insurance Payment Isn’t Enough To Pay Off Your Loan?

Unless you have Gap coverage, the settlement you receive may not be enough to pay off your loan or lease. Insurers are required to pay only what a totaled car was worth before it was damaged. So if your car’s actual cash value is less than what you owe the lender — or less than the payoff amount on your lease — you can end up having to make up the difference out of pocket.

If you research what your car was worth and think your settlement amount is too low, you can try to negotiate a higher amount. The insurer may ask you to provide documentation that proves the car was worth more than they’re offering, so be ready to round up photos of the car, maintenance receipts, and other paperwork that backs up your position.

You can also research comparable cars in your area. You may even want to hire a private appraiser to get a second opinion. If you think it will help, you might consider hiring an attorney.

Do Insurance Rates Increase After a Car Is Totaled?

Each insurance company has its own policy that determines whether a driver’s rates will increase after an accident. The decision may depend on who was at fault, your driving record, whether you’re a longtime customer or new driver, and other factors.

If you decide to shop for lower insurance rates to save money, keep in mind that you may have to answer questions about prior claims and accidents.

Recommended: How Much Does Insurance Go Up After an Accident?

The Takeaway

When a car is so badly damaged that fixing it would cost more than it’s worth, the insurer may decide it’s totaled. That means instead of repairing it, the insurance company will pay the owner the car’s actual cash value, based on its condition just prior to the accident.

If you own your car outright, the payment will come to you. If the car is financed and you’re still making payments, the insurer will make sure the lender is paid first. After that, you’ll get what’s left of the settlement. Either way, you can end up short of what you’ll need to replace your damaged vehicle.

Whether you’re shopping for new auto insurance or thinking about switching insurers, SoFi can help you compare your current policy to what other top companies are offering. With just a few clicks, you can find the deductible, coverage type, and premium that fit your needs.

Check out SoFi today to get real rates in real time for the coverage you really need.

FAQ

If my car is totaled, will the insurance company send me a check?

If you own the car, the settlement payment will go directly to you. When the car is financed, the lender will be paid first, and you’ll receive what’s left of the settlement.

Can I keep the money from the insurance claim?

If you owned the car that was totaled, you probably can use the insurance settlement for anything you like. But if the car was financed, the insurance company will make sure you pay off what you owe.

---

Photo credit: iStock/rocketegg

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOPT0922005

Read more

Many drivers choose liability-only car insurance to save money. The average annual premium is $1,070, according to the Insurance Information Institute. However, this type of coverage is not a good fit for everyone.

We’ll discuss exactly what liability-only insurance is, what it covers, and whether it’s the right choice for your needs.

What Is Liability Car Insurance?

Liability-only car insurance is a type of policy that provides the minimum protection that’s legally required by your state. More specifically, it covers the cost of bodily injury and property damage for other drivers and vehicles, up to a set limit, if you’re found at fault in a car accident. A liability-only policy is usually the most affordable car insurance you can get.

What Does Liability Car Insurance Cover?

There are two kinds of protection for liability-only car insurance: property damage and bodily injury coverage:

•   Property damage: Pays for others’ medical bills, lost wages, and expenses due to pain and suffering if the policyholder is found at fault. It can also cover legal bills if you’re sued over the accident, also up to the policy limit. (Find out how much car insurance goes up after an accident.)

•   Bodily injury: Pays for damages to another person’s vehicle and property if the policyholder is found at fault.

How Does Liability Car Insurance Work?

Liability car insurance will pay up to a certain dollar limit. If damages or bills exceed that limit, you’re responsible for the remainder. While it’ll cover things like medical bills and car repairs for others, this type of policy won’t pay for repairs to your own vehicle or your medical bills.

Recommended: Insurance Tips for First-Time Drivers

Liability Car Insurance Coverage Requirements by State

Most states require car insurance, though the minimum coverage requirements vary. See below for a state by state breakdown.

State	Minimum Coverage Requirements
	Minimum Bodily injury per person	Minimum bodily injury per accident	Minimum property damage per accident
Alabama	$25,000	$50,000	$25,000
Alaska	$50,000	$100,000	$25,000
Arizona	$25,000	$50,000	$15,000
Arkansas	$25,000	$50,000	$25,000
California	$15,000	$30,000	$5,000
Colorado	$25,000	$50,000	$15,000
Connecticut	$20,000	$50,000	$25,000
Delaware	$25,000	$50,000	$10,000
District of Columbia	$25,000	$50,000	$10,000
Florida	N/A	N/A	$10,000
Georgia	$25,000	$50,000	$25,000
Hawaii	$20,000	$40,000	$10,000
Idaho	$20,000	$50,000	$15,000
Illinois	$25,000	$50,000	$20,000
Indiana	$25,000	$50,000	$10,000
Iowa	$20,000	$40,000	$15,000
Kansas	$25,000	$50,000	$10,000
Kentucky	$25,000	$50,000	$10,000
Louisiana	$15,000	$30,000	$25,000
Maine	$50,000	$100,000	$25,000
Maryland	$30,000	$60,000	$15,000
Massachusetts	$20,000	$40,000	$5,000
Michigan	$20,000	$40,000	$10,000
Minnesota	$30,000	$60,000	$10,000
Mississippi	$25,000	$50,000	$25,000
Missouri	$25,000	$50,000	$25,000
Montana	$25,000	$50,000	$10,000
Nebraska	$25,000	$50,000	$25,000
Nevada	$25,000	$50,000	$20,000
New Hampshire	$25,000	$50,000	$25,000
New Jersey	$15,000	$30,000	$5,000
New Mexico	$25,000	$50,000	$10,000
New York	$25,000	$50,000	$10,000
North Carolina	$30,000	$60,000	$25,000
North Dakota	$25,000	$50,000	$25,000
Ohio	$25,000	$50,000	$25,000
Oklahoma	$25,000	$50,000	$25,000
Oregon	$25,000	$50,000	$20,000
Pennsylvania	$15,000	$30,000	$5,000
Rhode Island	$25,000	$50,000	$25,000
South Carolina	$25,000	$50,000	$25,000
South Dakota	$25,000	$50,000	$25,000
Tennessee	$25,000	$50,000	$15,000
Texas	$30,000	$60,000	$25,000
Utah	$25,000	$65,000	$15,000
Vermont	$25,000	$50,000	$10,000
Virginia	$30,000	$60,000	$20,000
Washington	$25,000	$50,000	$10,000
West Virginia	$25,000	$50,000	$25,000
Wisconsin	$25,000	$50,000	$10,000
Wyoming	$25,000	$50,000	$20,000

Data courtesy of the Insurance Information Institute

How Much Is Liability Only Car Insurance by State

State	Average National Monthly Premium	Average National Annual Premium
Alabama	$43.93	$527.20
Alaska	$48.74	$584.90
Arizona	$51.88	$622.55
Arkansas	$40.36	$484.37
California	$51.89	$622.77
Colorado	$58.73	$704.82
Connecticut	$66.62	$799.45
Delaware	$74.82	$897.87
District of Columbia	$68.28	$819.36
Florida	$83.10	$997.20
Georgia	$83.10	$997.20
Hawaii	$39.90	$478.83
Idaho	$36.13	$433.66
Illinois	$43.42	$521.11
Indiana	$37.08	$444.98
Iowa	$29.19	$350.31
Kansas	$35.51	$426.14
Kentucky	$50.83	$609.98
Louisiana	$85.32	$1,023.91
Maine	$31.28	$375.40
Maryland	$62.43	$749.18
Massachusetts	$55.41	$664.92
Michigan	$81.62	$979.47
Minnesota	$41.86	$502.32
Mississippi	$45.37	$544.43
Missouri	$43.96	$527.59
Montana	$36.47	$437.69
Nebraska	$35.97	$431.71
Nevada	$77.14	$925.71
New Hampshire	$36.87	$442.52
New Jersey	$79.86	$958.31
New Mexico	$48.68	$584.25
New York	$77.70	$932.46
North Carolina	$32.67	$392.06
North Dakota	$26.02	$312.30
Ohio	$37.32	$447.86
Oklahoma	$42.06	$504.79
Oregon	$57.06	$684.81
Pennsylvania	$45.71	$548.58
Rhode Island	$76.52	$918.30
South Carolina	$59.60	$715.26
South Dakota	$28.09	$337.11
Tennessee	$39.95	$479.43
Texas	$54.18	$650.17
Utah	$51.26	$615.15
Vermont	$31.17	$374.06
Virginia	$40.96	$491.51
Washington	$58.76	$705.11
West Virginia	$42.93	$515.20
Wisconsin	$35.10	$421.21
Wyoming	$29.67	$356.08

Data courtesy of the Insurance Information Institute

Liability Car Insurance vs Full Coverage

How much auto insurance you need depends partly on whether you can afford to repair or replace your car. Full coverage will pay for your car repairs and medical bills after an accident, no matter who is at fault.

It also covers repairs or replacement of your vehicle for covered “perils” (an auto insurance term) like theft, fire, flood, collisions with animals, vandalism, and falling objects. Because of the additional features, full coverage car insurance tends to cost much more than liability insurance.

When To Drop Comprehensive and Collision Coverage

Because your insurance needs change over time, it makes sense to reevaluate those needs on a regular basis with a personal insurance planning session. In some cases, you may find that it makes sense to drop comprehensive and collision coverage:

•   You’re not currently driving your vehicle: If your car is parked in a garage or at home and you don’t intend to drive it, comprehensive coverage doesn’t make sense. However, you may want to keep collision coverage because it protects against perils such as theft, fire, and vandalism.

•   Your car has a low market value: If your car is worth less than a few thousand dollars, getting pricey repairs — after you pay your deductible — may not be worth it. (Learn about the different types of insurance deductibles.)

Recommended: How to Save Money on Car Maintenance

How To Shop for Liability-Only Car Insurance

The first step in getting car insurance is determining how much you need. You must purchase the minimum coverage required by your state. If you want more financial protection — especially if you’re worried about medical bills and car repairs for expensive vehicles — then consider a higher coverage limit to give you more peace of mind.

Then it’s time to shop around on online insurance sites to get a sense of the going rates. Factors to look for include what is a covered peril and the insurer’s customer reviews.

The Takeaway

Liability-only car insurance is best suited for drivers with low-value vehicles who want to save money. Keep in mind that liability policies don’t cover your own medical bills or vehicle after an accident. If you want this protection, you may be better off paying more and purchasing full coverage.

Shopping around is the best way to find a policy that suits your needs. SoFi makes it easy by helping you compare rates from top insurers in just minutes.

Real rates, with no bait and switch.

FAQ

Do I need liability insurance when renting a car?

You don’t need to have your own auto insurance policy when renting a car, as rental car companies typically have their own coverage. However, you can purchase collision or comprehensive insurance while renting a vehicle if you want additional coverage.

At what point is full coverage not worth it?

Full coverage auto insurance typically is not worth it if your vehicle has a low value or you don’t intend to drive your vehicle for a long period.

When should I go from full coverage to liability?

Going from full coverage to liability requires careful consideration. In most cases, if your vehicle is worth less than what your deductible will cost, it might be time to drop down to liability coverage.

---

Photo credit: iStock/Antonio_Diaz

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT1022002

Read more

A car is typically considered totaled when the insurance company determines it will cost more to repair than the vehicle is worth. Beyond that, states have their own guidelines for when a car should be declared totaled. That guideline is called the “total loss threshold.”

Learn more about the different thresholds for totaled cars in each state, and what to do if your car is totaled in an accident.

What Is a Totaled Car?

A totaled car, according to insurance companies, costs more to repair than its current book value. An insurance company can also declare a car totaled when the vehicle may be unsafe to drive even after repairs are complete.

Not all damage is the result of a crash. Vehicles that are caught in a flood usually sustain so much damage that it’s common for a flooded car to be deemed a total loss.

What Insurance Covers When a Car Is Totaled

When an insurer considers a car to be totaled, they reimburse the owner for the “actual cash value,” or ACV. That is the amount the car was worth right before the crash or incident.

The ACV is not the same as what you paid for the car. That’s because the original purchase price is reduced over time by depreciation. The ACV is also typically less than what it will cost to replace the car, known as replacement value.

How Is a Totaled Car’s Value Determined?

As mentioned above, insurance companies evaluate totaled cars based on their condition and mileage just before the accident or incident. Other factors include make and model, age, and where you live. For more on this topic, see How Much Is My Car Really Worth?

What Is a Total Loss Threshold?

An insurance company may consider a car totaled even when repair costs are less than its ACV — sometimes quite a bit less. That’s because when a damaged car is assessed, the insurance adjuster is limited to a superficial visual inspection. It’s recognized that more damage is often uncovered during the repair process, as the mechanic takes a close look at hidden components. (By the way, some drivers might find this rundown of car insurance terms helpful.)

The total loss threshold is a set percentage of the ACV where a vehicle is still considered totaled. Each state sets its own percentage; the threshold for Alabama, for example, is 75%. Insurance companies may use a lower percentage, but they must meet the state’s minimum.

Total Loss Threshold by State

You can find your state’s total loss threshold in the table below. For states that use the “total loss formula,” the threshold is set as the vehicle’s fair market value less its salvage value.

Recommended: Insurance Tips for First-Time Drivers

State	Total Loss Threshold
Alabama	75%
Alaska	Total loss formula
Arizona	Total loss formula
Arkansas	70%
California	Total loss formula
Colorado	100%
Connecticut	Total loss formula
Delaware	Total loss formula
Florida	80%
Georgia	Total loss formula
Hawaii	Total loss formula
Idaho	Total loss formula
Illinois	Total loss formula
Indiana	70%
Iowa	70%
Kansas	75%
Kentucky	75%
Louisiana	75%
Maine	Total loss formula
Maryland	75%
Massachusetts	Total loss formula
Michigan	75%
Minnesota	70%
Mississippi	Total loss formula
Missouri	80%
Montana	Total loss formula
Nebraska	75%
Nevada	65%
New Hampshire*	75%
New Jersey	Total loss formula
New Mexico	Total loss formula
New York	75%
North Carolina	75%
North Dakota	75%
Ohio	Total loss formula
Oklahoma	60%
Oregon	80%
Pennsylvania	Total loss formula
Rhode Island	Total loss formula
South Carolina	75%
South Dakota	Total loss formula
Tennessee	75%
Texas	100%
Utah	Total loss formula
Vermont	Total loss formula
Virginia	75%
Washington	Total loss formula
Washington D.C.	75%
West Virginia	75%
Wisconsin	70%
Wyoming	75%

Data courtesy of Policy Genius

Steps To Take When Your Car Is Totaled

After an accident, you probably know to alert your insurance company as soon as possible. But then what? Here are the steps.

File a Claim

Filing a police report is not enough. You must contact your insurance company separately. Do so as soon after the accident as possible so they can begin working on your claim. You can also find out how much your insurance may go up after the accident, if you’re found at fault.

If you’re without a vehicle, our advice on the cheapest way to rent a car might interest you.

Assess the Damage

Your insurance company may direct you to one of their approved body shops for a review of the vehicle and its damage. If you have your own trusted body shop, ask the insurer if you can take it there. As long as the estimate seems reasonable, then the insurer should accept it.

Know Your Car’s Fair Market Value

You can use sources like Kelley Blue Book (KBB.com) and Edmunds True Value (Edmunds.com) to look up your car’s value. Just enter the make, model, and year. (Users of SoFi’s Financial Insights app also have access to our Auto Tracker.)

Besides online research, you can work with a dealership to get an estimate. No matter which route you go, this is important information to have because it will give you an idea of how much your insurer may pay for your car.

Contact Your Lender

If you owe money on the totaled vehicle, let your lender know about the accident. Your insurer will either pay off the lender directly (if you receive enough funds to cover the balance) or write a check for you to forward to the lender. If you receive more for the totaled vehicle than you owe, then the balance beyond the loan amount goes to you.

If you have a gap insurance policy on the totaled car, that will pay off your lender if your insurance reimbursement doesn’t cover all that you owe on the vehicle.

Negotiate the Claim With the Insurer

Depending on who is at fault, you may or may not need to pay your insurance deductible. If your insurance assessment feels off, you may want to negotiate the ACV or the cost of repairs.

If your negotiations are fruitless, switching car insurance is always an option. You can also contact your state’s department for insurance for help.

Shop for a New Car

It can take two to four weeks to get a check. States usually provide time frames in which a claim should be processed. Your insurance company can also give you an estimate on their typical processing time.

Recommended: How To Save on Car Maintenance Costs

Pros and Cons of Keeping a Totaled Car

Sometimes, a totaled car’s owner may want to hold onto it. This is known as an “owner-retainer option.” In this case, the insurance company will typically reimburse the owner the amount owed minus the salvage value.

The owner can take the payout and repair the vehicle to a drivable condition, which will likely cost less than buying a replacement vehicle. The downside is that the owner gets less cash and will need to get car insurance for the old vehicle, which can become a more expensive proposition than simply taking the cash. The owner may also keep the car and not fix it — or partially fix it — assuming that it’s drivable.

The owner can then sell the vehicle, perhaps to a salvage yard or other drivers for parts. You may end up getting more money than the insurance company would pay out. However, this isn’t guaranteed. Instead, you can end up with less money and more work.

Tips for What To Do if Your Car Is a Total Loss

These three tips can make the process easier.

•   Gather your loan paperwork (if applicable), car title, and maintenance receipts to have all the information you may need at hand.

•   Remove personal belongings, such as phone chargers and sunglasses, from the vehicle. In most states, you’ll need to give the state DMV your license plate. In some states, you can keep the plates and put them on your replacement car.

•   Consider whether donating the car is a good option. You may be able to claim a tax deduction for your good deed (keep your receipt), but you won’t get the funds you would from selling the car.

The Takeaway

A car is considered totaled when the insurance company determines it will cost more to repair than the vehicle is worth. However, insurance companies often pick a figure that’s considerably lower than the vehicle’s actual cash value, because more damage is typically found once repairs have begun. That amount is called the “total loss threshold.” The legal threshold varies by state, but is typically between 60% and 100 of a vehicle’s value.

If you’re in the market for new auto insurance, SoFi can help. We partner with Experian to bring you a true comparison insurance shopping experience, using the right mix of technology and human interaction.

SoFi provides an apples to apples comparison against your existing policy to find you a great deal.

FAQ

What is the percentage before a car it totaled?

You’re referring to the “total loss threshold.” After an accident, if repairing a damaged car will cost close to its actual cash value — say, 75% or more — then the insurer may consider the car totaled. This threshold varies by state but is typically 60% to 100%.

What is the total loss threshold for GA?

Georgia is a Total Loss Formula state. That means that a car is considered totaled if the cost of repairs equals the vehicle’s fair market value minus its salvage value.

What is the threshold for totaling a car?

It depends upon the state where the accident occurs and your insurance policy. Most state thresholds are 60% to 100% of a car’s value. Insurance company thresholds may be lower, but cannot by law be higher.

---

Photo credit: iStock/Pakhnyushchyy

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT1122002

Read more

With typical driving, a car battery usually has a lifespan of three years of trouble-free driving. At that point, you might need to charge it. But what if you park the car and just let it sit? In that case, how long does a car battery last without driving or charging?

This post will take you through a variety of scenarios to help you gauge how often you might need to start up a car in order to preserve the battery life.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

How Long a Car Battery Lasts Without Driving

Although no two vehicles or batteries are exactly the same, estimates can be made. So if you’re wondering how long a car battery typically lasts when the vehicle sits idle, here are some broad averages.

First, it’s strange but true: Although many things wear down with use, a car’s battery can “die” within a couple of months if it’s not used. Here’s why: Your car battery takes chemical energy and transforms it into electrical energy when you start the ignition. That electricity then powers the radio, clock, and other accessories.

When you park your car for an extended period, the battery can go dead — meaning, not operate without a charge — as quickly as in two months’ time.

As for how long an electric car battery lasts, the answer is about the same. Electric cars are fueled solely by electricity stored in the battery. Teslas, for example, are all-electric. If the battery is in good shape and fully charged, it might take a month or two to lose power.

Then there are hybrid cars, which are fueled by a combination of electricity and gasoline. How long a hybrid car battery lasts when not in use depends on the battery. Vehicles with 12-volt batteries may drain more quickly than other kinds — in as little as one month. See your owner’s manual for guidance.

What Can Drain a Car Battery When the Car Is Off?

Older batteries won’t hold their charge as long as new ones. But there are many other reasons for a battery to “drain” faster:

•   Electrical problems: bad cables, blown fuses, spark plugs

•   Corrosion on the battery

•   Alternator problems

•   The charging system itself

If you suspect one of these issues, see our advice on saving on car maintenance costs.

How To Save a Car Battery When Not in Use

As noted, using your car allows it to convert chemical energy into electrical energy. If your car will be sitting idle for a while, it’s a good idea to take it out for a 15-minute drive once a week to allow the battery to recharge.

Simply turning the ignition on and off is not enough. This sort of usage may cause more harm than good. If you’ve got more than one vehicle at home and use one as your primary vehicle, consider using the secondary vehicle more often.

Recommended: How To Lower Your Car Insurance

How To Keep a Car Battery Charged When Not in Use

Consider using a “trickle charger.” These devices, which are attached to the car long-term, recharge the battery at the same rate it typically drains. There are different types of chargers that can be left connected to your vehicle for varying lengths of time. Make sure you get the type that’s appropriate to your car model and you understand how it should be used.

Steps To Take if a Car Battery Is Dead

If you accidentally leave the lights on (or some other accessory), you probably just need to juice up the battery again.

When there’s no obvious reason that the battery is drained, check for corrosion on the terminals that connect the car battery to the charging system. If you see white deposits, try brushing the ashy material off with a wire brush and baking soda.

If the first two scenarios don’t apply, you may have a defective battery. The problem can also be other faulty or worn-down parts, such as a battery cable, terminals, or alternator. In that case, you’ll need the parts repaired or replaced.

How Much Replacing a Car Battery Costs

If you’re going to DIY, a new battery can cost less than $100. If you’re going to hire a mechanic to have the work done, it may cost up to $500 depending on the make and model and the mechanic’s pricing.

Battery replacement — and other car maintenance costs — aren’t covered by insurance. Find more insurance tips for first-time drivers.

How To Jumpstart Your Car With Cables

When you jumpstart your car, you use the power from another car battery to give yours a “jump” and allow it to operate again. If a jumpstart doesn’t work, then it’s more than likely you need a new battery.

First, park the two cars close together, turn them both off, and open the hoods. Take out your jumper cables and untangle them. Hook the red/positive clamp to the positive terminal of the battery that needs a charge. Then attach it to the working battery’s positive terminal, using the red/positive clamp.

Take the black/negative clamp and connect it to the negative terminal of the working battery. Attach the other black/negative cable end to a surface on the car with the dead battery — somewhere that’s metal and unpainted.

Start the working car, then see if the other car will also start. Turn off the working/jumper vehicle. Carefully remove the cables in the reverse order that you attached them. Let the car with the newly charged battery run for at least fifteen minutes.

Some insurance policies cover jumpstarts as part of their roadside assistance option. When deciding how much car insurance you need, weigh the cost of this extra against the added convenience.

How long the battery charge lasts can vary. If it goes dead again, have your battery checked out to see if it needs to be replaced.

Recommended: How to Get Car Insurance

How To Know When a Car Needs a New Battery

When your battery will no longer hold a charge for long, you’ll need to replace it. A good rule of thumb is to replace your car battery every four years.

Recommended: Types of Deductibles in Insurance

Car Insurance Resources

As mentioned above, some car insurance policies offer roadside assistance options. The next time you’re sitting down for a personal insurance planning session, consider the pros and cons of these kinds of extras.

To find the best rates you’re eligible for, shop around on an online insurance marketplace.

Recommended: How Much Does Insurance Go Up After an Accident?

The Takeaway

How long a typical car battery lasts depends on how often you drive or charge it, how old the battery is, the type of battery, and more. A new car battery should last about four years on average. The cost of a new battery can be as little as $100 if you replace it yourself. Otherwise, a mechanic may charge you up to $500. Keeping your battery free of corrosion may extend its life.

To protect your investment, SoFi can help you compare auto insurance rates from top insurers easily and quickly. We’ve partnered with Experian to bring you a true comparison insurance shopping experience, using the right blend of technology and human interaction.

Get an apples to apples comparison against your current policy with real rates.

FAQ

How long does a car battery last without charging?

A car battery can last three to four years if you’re regularly using the car. If you leave lights on or park the car for an extended period, then it may need charging before you can drive it. A “trickle charger” can help maintain the battery in a car that’s in storage.

How often do you need to start your car to keep the battery from dying?

A car battery can often stay in good shape for a month even when you don’t drive the vehicle. However, if you want to make sure the car is ready to use in case of an emergency, take it for a 15-minute drive once a week.

How long can a car last on just the battery?

If your alternator fails when you’re far from home, you can typically drive up to 200 miles on battery power alone. That’s assuming your battery is in good shape and fully charged. Of course, it’s best to get the alternator repaired or replaced as soon as you can.

---

Photo credit: iStock/Fernando rodriguez novoa

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT1122001

Read more