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There may come a time when you end up not using one of your credit cards anymore. This can happen because you’ve amassed multiple cards and now have one that offers better rewards, or maybe you have a retail card for a store you no longer frequent. Whatever the reason, it’s valid to wonder what happens if you don’t use your credit card.

In many cases, nothing will happen. However, there may be some instances where not using a credit card will carry consequences. That’s why it’s important to know what happens if you don’t use a credit card.

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Is It Bad to Have a Credit Card and Not Use It?

Typically, no, it’s not bad to have a credit card that you don’t use regularly. Not using a credit card for a few months is usually not that big of a deal as long as you keep making any necessary payments on any credit card charges you’ve made. However, there may be some unintended consequences of not using a credit card for a longer period of time.

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What Happens If You Don’t Use Your Credit Card?

If you’re wondering, ‘Is it bad to not use a credit card?,’ here’s a look at some of the potential consequences.

You Might Overlook Fraudulent Charges and Activities

If you don’t use your credit card, you may end up missing transactions that you otherwise would have noticed on your credit card statement. For instance, if your credit card information were to get stolen and used for unauthorized purchases, you might not spot that activity if you’ve stopped checking your statements. The longer the issue continues, the more damage that can be done, given what a credit card is.

You Might Miss Payments

Another possible consequence of an unused credit card that you’re not checking in on regularly is missed payments. If you need to pay an annual fee for the card, for instance, you could forget that you’ll be charged if you’re not often using the card. Missing a payment can have severe financial consequences, which is why making on-time payments is one of the cardinal credit card rules.

Recommended: When Are Credit Card Payments Due

Your Card Issuer May Close Your Account

If you don’t use a credit card for a long period of time — say, at least a year — your issuer may close your credit card. What’s more, credit card issuers don’t have to give you notice when they’re about to close your credit card, so you may only find out when you go to use it.

Exactly what counts as inactivity and the length of time before an account closes will be up to each credit card issuer. If you’re concerned about your card being closed due to inactivity, contact your issuer to find out when they may close your account.

Your Credit Score May Go Down

If your credit card issuer closes your credit card, your credit score could be negatively affected. This is due to a couple different reasons.

For one, the closure of your account will cause your overall credit limit to go down. This could drive up your credit utilization ratio — the percentage of the overall amount you use across the credit limit of your credit cards — which accounts for 30% of your credit score. The higher this ratio, the lower your score can go because creditors tend to take this as a sign you may have issues with handling debt. If the closed credit card had a high credit limit, it could affect your credit utilization even more.

Secondly, the closure of your credit card could impact the length of your credit history, which accounts for 15% of your credit score. Closing a credit card you’ve had for a while could result in a negative impact on your score, marking another way that not using a credit card can hurt your credit score.

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You May Lose Your Rewards

Depending on your credit card, any unused rewards will expire after a certain period of time. What’s more, if your issuer ends up closing your credit card due to inactivity, any rewards you’ve earned on your card up to that point could be lost.

How Long Can You Go Without Using a Credit Card?

How long you can go without using a credit card will depend on your issuer. Some may close your credit card after six months of inactivity, whereas others may only close the card after a year of inactivity or more.

Again, it’s important to check your credit card’s terms and conditions to learn more about how a credit card works. Or, you can contact your issuer to find out what can happen if you don’t use your credit card for a while.

Closing a Credit Card You Don’t Use: What to Know

If you have a credit card you no longer want to use, it might make sense to close it. While the previously mentioned consequences may happen — such as losing your rewards and facing impacts to your credit score — it is still possible to close a card.

Before doing so, determine whether your credit card has a high credit limit and consider how long you’ve had the card. Closing a credit card you’ve had for a while could have a negative impact on your score. Same goes for a credit card with a high limit, since it could significantly raise your credit utilization.

If neither of the above are of concern, then think carefully about whether you’ll likely use the card again in the future. Does this card not help you earn rewards, whereas other ones you own do? Or is this a secured credit card and you can now qualify for an unsecured card?

If there’s no potential major financial impact to closing the card, and you’re sure you won’t use it anymore, then you might consider moving forward with closing it.

Does Not Using a Credit Card Hurt Your Credit Score?

The effect that not using a credit card will have on your credit score depends on whether the issuer closes your account. If the credit card is still open and you’re otherwise responsible for credit that you do use, like making consistent on-time payments, then your credit score most likely won’t be affected.

Keeping Your Cards Active Without Hurting Your Credit Score

Keeping a credit card active is as simple as using the card every few months for regular, small purchases. You might consider using the card to cover a subscription to a streaming service, for example. Or, you could use it to cover another monthly bill.

If you’re worried about checking in frequently enough, you might set up autopay for that credit card. That way, you’ll ensure you’re paying on time.

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The Takeaway

It’s normal to not use a credit card if you have other ones that are a better fit. But before closing the card or letting it get shut down due to inactivity, consider making small purchases on it to keep it active. Otherwise, you’ll want to determine whether your credit score can handle potentially taking a dip.

Looking for a credit card with perks you won’t want to lose? Consider the SoFi credit card, where you can earn cash-back rewards on all qualifying purchases, and pay no foreign transaction fees. See what other benefits the card offers and apply for a credit card today with SoFi.

FAQ

Will I be charged if I don’t use my credit card?

If your credit card typically charges an annual fee, that fee will still apply even if you don’t use your credit card.

What happens if I don’t use my credit card for a year?

Some credit card issuers may close your credit card, even without your knowledge, due to inactivity. This may occur if you don’t use your card for a year or more, though the exact length of time will vary depending on the issuer.

Should I get rid of my credit card if I don’t use it?

You can get rid of your credit card, but know that it may affect your credit score. It’s a good idea to research the potential consequences of closing a credit card before actually doing so.

Do unused credit cards affect your credit score?

Unused credit cards may affect your credit score if you or your credit card issuer closes the account. The account closure could result in an increased credit utilization ratio since your overall credit limit will go down across all of your cards. Plus, if the close credit card is one of your oldest ones, it could diminish the length of your credit history, therefore affecting your score.

Photo credit: iStock/kohei_hara

¹See Rewards Details at SoFi.com/card/rewards.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .



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Having a high credit limit can be a good idea for a variety of reasons. First of all, if your credit limit is too low, it may make it hard to use your card for your regular monthly expenses. Having a high credit limit can positively impact your credit score as well. You’ll just make sure that having a credit card with a high limit doesn’t influence you to spend more than your budget allows.

Before you move forward with securing a high-limit credit card, you’ll want to know your options for how to get a high-limit credit card. If you’re worried about securing the highest credit card limit possible, there are a couple factors you’ll want to take into account, too.

What Is a High-Limit Credit Card?

For reference, the average credit card limit for Americans was $30,365 in 2020, according to data from the credit bureau Experian. So if you have a credit card with a limit above that average, you may consider that to be a high-limit credit card.

In general, however, there isn’t a specific dollar amount that makes a credit card a “high-limit” credit card. What’s considered a high credit card spending limit for some people may not be a high limit for others with a different financial situation. Keep in mind that higher credit limits generally require excellent credit to qualify for, meaning a score of 800 and up.

How Can a Higher Credit Limit Help You?

There are two ways that having a credit card with a higher credit limit can help your financial situation.

First, increasing your credit card limit can make it easier to manage your monthly finances. If your credit limit is at or below the amount of your average monthly expenses, you may find it difficult to manage your budget without having to make additional credit card payments.

Second, having a higher credit limit will decrease your credit utilization rate, which can have a positive impact on your credit score. Your credit utilization rate looks at how much of your available credit you’re using, and the less you’re using, the better it is for your credit score. If you increase your credit limit but don’t add to your current balances, you’ll end up using a lower percentage of your available limit.

Factors to Consider

There are a couple factors you’ll want to consider before attempting to get a high-limit credit card.

The Timing

First, make sure that the timing is right for you and your specific financial situation. Your credit card limit is determined by the financial information you provide on your credit card application, especially your income. If you’re in a situation where your income is about to increase (either due to an upcoming bonus, a change in job, or something else), you may want to wait until after your income increases before trying to get a high-limit credit card.

Your Credit Report

Credit card issuers also look at your credit report when choosing whether to issue you a credit card and how much of a credit line to extend. Make sure that you check your credit report before applying and ensure that there are no errors or discrepancies. If there are any errors, you can contact the credit bureaus to have them fixed.

Options for Getting a High-Limit Credit Card

If you think you’re well-positioned to ask for an increase, here are your potential options for how to get a credit card with a high limit — or at least a higher limit than what you currently have.

Contact Your Card Issuer

If you already have a credit card that you enjoy using and want to keep, you can try to contact your card issuer to request a higher limit. You may be able to do so by calling the number listed on the back of your credit card or sending a message online. Explain the credit limit you’re looking for and why you feel that it’s justified.

This approach may be a good idea if your financial situation has improved since you opened the card. This could be due to an increase in income, a new job, or paying down other debt.

Look Out for Automatic Increases

Many card issuers will regularly review the accounts of their cardholders. In some cases, they’ll automatically and proactively increase your credit limit if you’ve been using your credit card responsibly. This is especially common for cards with lower initial limits and cards designed for those with a less robust credit history.

If your issuer has not already increased your credit limit, you can contact them and ask for a higher limit.

Apply for a New Card

Another option is applying for a new card. If you’re not happy with your current credit card or if your current card issuer will not increase your credit limit, getting a new credit card can be another option.

Before applying, make sure that you have checked your credit report for any inaccuracies and paid down outstanding debt if possible. That will help improve your odds of getting a higher credit limit.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

How High Should Your Credit Limit Be?

There is not a set amount for how high your credit limit should be. Instead, it depends on your specific financial situation.

Aim for a credit limit that is at least twice the average amount you spend on your credit card each month. That will help keep your credit utilization percentage low. And remember that the absolute best thing you can do to help your credit score is to pay your statement off in full, each and every month.

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Choosing the Best High-Limit Credit Card

Many premium and luxury credit cards will offer relatively high credit limits, especially if you have a high credit score and a high income. So instead of looking for the credit card that gives you the absolute highest limit, you might instead consider the overall perks and benefits of each different card. When evaluating different cards, some things to look out for include:

•   Rewards: Take a look at whether a credit card offers rewards and if so, in what form. Perhaps you’d prefer to earn cash-back rewards for the simplicity over credit card points. From there, compare to see which card offers a more generous rewards rate and has better redemption options.

•   Annual fees: You’ll also want to look at whether a card charges an annual rate. If it does, do the math to see if the rewards you’ll earn can offset this cost.

•   Customer service: If you were ever to have an issue with your credit card, it’s important to have a reliable customer support team to turn to. When weighing which card to get, take into account the reputation of their customer support and general customer satisfaction.

•   Luxury or travel perks: Beyond rewards, many credit cards also offer an array of other benefits. This can include rental car insurance, travel insurance, discounts for Global Entry or TSA PreCheck, airport lounge access, hotel stays, and more.

•   Sign-up bonuses: A generous welcome bonus can also help you decide between two otherwise comparable cards. Some credit cards offer bonus cash-back rewards or points when cardholders spend a certain amount within a specific period of time after opening the card.

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Alternatives to High-Limit Credit Cards

If you’re not able to qualify for a high-limit credit card or simply aren’t sure it’s the right route for you, there are other options to explore instead.

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Home Equity Loan or Home Equity Line of Credit

Depending on what you’re using your credit card for and why you want a high credit limit, you might consider a home equity loan or home equity line of credit (HELOC). Both a home equity loan and a HELOC allow you to capture some of the equity in your home. You can then use that money for other expenses.

Business Line of Credit

If you have a business that’s looking for extra flexibility with accounts receivable and ongoing payments, you might consider a business line of credit. While there are business credit cards that offer high limits, you might be better off with an actual business line of credit. Business lines of credit often base their credit limits based on the monthly or annual gross or net income of the business.

Personal Loan

Another option to consider might be a personal loan, especially if you have good credit and/or a relatively high income. Qualifying for a personal loan can give you money upfront in exchange for regular monthly payments. You can then use that money for whatever projects or expenses make sense for your situation.

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The Takeaway

There can be advantages to having a high-limit credit card, like added flexibility in managing your monthly finances as well as the possibility of improving your credit score. Just make sure that you remain focused and diligent in paying off your statement in full, each and every month. You don’t want a higher credit limit on your credit card to encourage you to spend more.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you get an unlimited credit limit?

Unless you are ultra-wealthy or have a very special relationship with your credit card issuer, you’re unlikely to get a credit card with no limit at all. There are, however, some credit cards (like the American Express Platinum card) that have no preset credit card spending limit. That means that instead of a standard credit limit, your limit is flexible and may go up and down as your spending habits change.

Should I get a credit card with a higher limit?

Before deciding to get a credit card with a higher limit, you should ask yourself why you want to increase your limit. Is it to better manage your monthly finances? Are you trying to lower your credit card utilization? These can both be good reasons to increase your credit limit. But if you’re just trying to increase it to use as a status symbol or “just because,” you may want to think twice before doing it.

What is the highest credit card limit?

There isn’t a definitive and published answer for the highest possible credit limit. Credit limits are issued to individuals and businesses based on their credit history and income. It’s not unreasonable to think that there are credit cards with a six- or even seven-figure limit. As a data point, the average credit card limit for Americans was $30,365 in 2020.

How can I get a higher credit limit?

The best way to see if you qualify for a higher credit limit is to contact your issuer. You can call the number on the back of your card or reach out via your online account. If you’ve been regularly using your card and paying your bill in full, your issuer may agree to increase your limit. If your income or other financial situation has changed, that’s another reason to contact your issuer and see if you can get a higher credit limit.

Photo credit: iStock/Prostock-Studio

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

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Owning a cell phone can get expensive, especially if you have to replace or fix a stolen or damaged one. Luckily, you may have cell phone protection from your credit card.

By taking advantage of credit cards with cell phone protection, you could save on a separate cell phone insurance plan. But before signing up for a new credit card or foregoing insurance, it’s best to understand exactly what is and isn’t covered under credit card phone insurance.

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What Is Credit Card Cell Phone Protection?

Credit card cell phone protection is a type of insurance protection, where your credit card issuer pays for you to replace a stolen cell phone or make repairs to a damaged one. In most cases, you’ll need to pay for your cell phone bill with that card in order to get the protection.

Depending on the terms and conditions listed on your credit card, you’ll be protected from certain types of damage, and up to a certain coverage amount.

How Does Credit Card Cell Phone Protection Work?

When you pay for your cell phone bill with a credit card that offers cell phone protection, you can file a claim if you experienced a type of covered loss.

Keep in mind that the coverage provided by your cell phone may not be primary. This means you may need to exhaust your other options, such as by filing a claim with your home, car, or separate cell phone insurance first. It’s best to check the terms of your credit card phone insurance to see when you’re able to file a claim.

If you are able to file a claim with the credit card issuer, you may need to pay a deductible per claim (in many cases it’s around $25 or $50) before insurance kicks in. Plus, you may have limitations as to how many claims you can make per year, as well as the amount you’ll be covered for. The specifics will ultimately depend on how your credit card works.

Who Does Credit Card Cell Phone Protection Cover?

In most cases, your credit card issuer will provide protection for cell phones that you pay your monthly service bills for. As in, any phone numbers listed on the monthly bill that you pay for using an eligible credit card will most likely be covered. That means if you have more than one phone on your plan, the credit card protection will extend to all of them.

However, some credit card companies may limit the number of cell phones that are covered. It bears repeating that it’s important to check the coverage limitations listed in the terms and conditions for your credit card.

What Does Credit Card Cell Phone Protection Cover?

Typically, credit card cell phone protection will pay to replace an eligible phone that’s stolen or to make repairs to an eligible phone that’s damaged. What’s typically covered includes damage to your phone that makes it non-functional or not operate optimally. Different credit card companies will have various definitions for covered damages, which can range from cracked screens to hardware failures.

What Isn’t Covered by Credit Card Cell Phone Protection?

Remember, cell phone protection only provides coverage for the actual phone. Here’s what usually is not covered by your eligible credit card:

•   Accessories like a phone case or screen protector

•   Cell phones for purchased for resale, or commercial or professional use

•   Cell phones that are lost or that disappeared under mysterious circumstances (i.e. there wasn’t evidence of any wrongdoing)

•   Phones stolen from a common carrier (like the U.S. Postal Service or another delivery service) or your baggage

•   Phones from pay-as-you-go plans

•   Cosmetic damage

•   Damage or theft from fraud, illegal activities, normal wear and tear, certain natural disasters, and intentional acts

•   Taxes or fees such as delivery charges

•   Losses that are covered under your cell phone manufacturer warranty

•   Replacement of a phone that wasn’t purchased from a cell phone retail store with the ability to activate phone with your cell phone service provider

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Factors to Consider Before Getting a Cell Phone Insurance Policy With Your Issuer

Trying to decide whether to take advantage of cell phone insurance through a credit card? Here are some considerations to make before deciding.

The Deductible

Though the deductible may not cost you a lot, it’s important to check exactly how much you’ll have to pay out of pocket before your insurance will cover the rest. It’s also smart to check how much it will cost for the repair beforehand, especially if you believe the cost could be close to the amount of your deductible.

The Number of Claims You Can File

Some credit card issuers limit the amount of claims you can make. For instance, you may only be able to make two separate claims a year up to the coverage limit.

You’ll also want to check to see whether the allowable coverage amount would be enough to replace your current phone if it’s stolen. If not, you may want to consider other alternatives.

Your Card’s Annual Fee

If you’re signing up for a credit card solely for the cell phone protection feature, make sure the annual fee is worth it, assuming there is one. In some cases, it may be better money-wise to stick with your homeowners or renters insurance, or to purchase a separate cell phone insurance plan.

At the end of the day, you don’t want the costs to outweigh the benefits of a credit card.

How to Know If Your Credit Card Has Cell Phone Protection

The best way to find out if your credit card offers cell phone protection is to check your card agreement. It should detail what features are offered — and you could even learn about additional perks, such as credit card rental insurance or credit card travel insurance.

Granted, the fine print can sometimes feel overwhelming or difficult to wade through. Another option is to call your credit card company and ask whether your card has cell phone protection and if so, how you can qualify.

Filing a Cell Phone Protection Claim

If you need to file a claim, most credit card issuers require that you file a report within a certain amount of time, such as within 90 days of your loss. Contact your credit card issuer, and it will provide the next steps you’ll need to take.

Your issuer may direct you to forms you’ll need to fill out with information like details around the loss and any proof you can provide. Your credit card company will then keep you informed with any updates related to your claim.

Alternatives to Credit Card Cell Phone Protection

If you aren’t using a credit card to pay your cell phone bill or just aren’t sure whether credit card cell phone protection is the right choice for you, there are other options. You might consider these alternatives:

•   Homeowners or renters insurance: Many homeowners or renters insurance policies offer coverage for personal belongings. However, it typically covers theft and not damage or loss. Plus, you may face a higher deductible compared to what a credit card company may charge.

•   Purchase a separate cell phone protection policy: Your phone’s manufacturer or service provider may offer policies. Before signing on the dotted line, read the fine print carefully to see what the coverage limit and deductible are, as well as what losses are included.

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The Takeaway

Getting cell phone coverage from a credit card can be a great way to protect an item you use often. Plus, it could save you from purchasing a separate policy. Before moving forward with credit card cell phone protection, check to see whether the credit card is worth signing up for.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can a cell phone be used to steal credit card details?

For the most part, the digital wallets used to store credit card information on your cell phone are safe. Still, you’ll want to do your research to ensure you’re choosing an app that has in place adequate protections. Also follow basic safety practices, like locking your phone, avoiding using digital payment devices over unsecured WiFi networks, and regularly reviewing your account for any fraudulent activity.

Is it safe to put your credit card details on your phone?

Generally yes, it’s safe to put your credit card details on your phone if you’re using e-wallet apps, such as Apple Pay and Samsung Pay. However, any type of credit card transaction can be vulnerable to fraud.

Is credit card cell phone protection worth it?

Credit card cell phone protection can be worth it if you want to guard against loss or theft for your phone that may cost you a lot of money to replace. You’ll want to weigh the card’s annual fee against the protection offered in order to determine if it’s truly worthwhile.

Photo credit: iStock/nunawwoofy

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.

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.

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When an insurance company determines that a vehicle is totaled — that is, so badly damaged that repairing it will cost more than it’s worth — the owner may be reimbursed for its actual cash value (ACV) instead of repairs. How much insurance will pay for a totaled car varies. The exact amount depends on the insurance company, where the driver lives, how much coverage they have, and other factors.

Knowing how insurance decisions are made, and how to manage your claim, can help you prepare for this scenario after an accident.

What Makes a Car a Total Loss?

An insurance company may declare a car a “total loss” if the cost of fixing it is more than the market value, or if it wouldn’t be safe to drive the car even if the repairs were made. The insurer also may make its decision based on how your particular state defines a total loss. (You can learn more about the terms discussed here and others in our guide to car insurance terms.)

Some states use a total loss threshold (TLT) to determine if a car is totaled. In these states, the damage must exceed a certain percentage of the car’s value. Missouri, for example, has an 80% TLT — which means if you were in an accident and your car worth $10,000 required more than $8,000 in repairs, your car could be declared a total loss. The repairs wouldn’t exceed the actual cash value of the vehicle, but they would exceed the state’s TLT. (Iowa has the lowest TLT in the U.S. at 50%. Colorado and Texas have the highest, with a TLT of 100%.)

Many states use a total loss formula (TLF) to declare a vehicle totaled. With this method, if the cost of repairs plus the salvage value of the car exceeds its actual cash value, the car is totaled.

If the insurance company thinks the damage could end up being more extensive than the adjuster’s initial estimate, it may use a lower threshold for declaring a total loss than what the state requires.

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What Types of Insurance Coverage Pay for a Totaled Car?

Whether your insurance will pay for a total loss (and how much it will pay) depends on your policy. This is when smart personal insurance planning pays off. There are a few types of coverage that might kick in if your car is totaled.

Collision Coverage

This coverage pays for damage to your own 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. (Learn more about the types of deductibles in insurance.)

If you are found to be at-fault, however, you can expect your car insurance premiums to go up after an accident.

Recommended: How to Get Car Insurance

Comprehensive Coverage

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

Property Damage Liability Coverage

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

Uninsured/Underinsured Motorist Coverage

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

New Car Replacement Coverage

With new car replacement coverage, if your car is totaled, your insurer will pay to replace your damaged car with a brand-new car of the same make and model (minus your deductible). Drivers looking for lower car insurance premiums tend to go with this extra, but it can save you big money in the event of an accident.

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GAP Coverage

If you owe more on your car loan or lease than what your insurance says your totaled car is worth, you could end up having to pay the difference. GAP coverage, short for Guaranteed Auto Protection, can help “bridge the gap” between your insurance settlement and what you still owe.

Recommended: Insurance Tips for First-Time Drivers

How Does an Insurance Company Decide How Much to Pay Out?

After an accident, you can expect your insurance company to assign an adjuster to handle your case. The adjuster will check out your damaged car and, as part of the assessment, determine the cost of repairs and if the car is worth repairing.

If it’s totaled, the adjuster will assign the car a value based on its pre-crash condition and what similar models are selling for. The “actual cash value” you receive will factor in the car’s age, wear and tear (inside and out), the car’s mileage, equipment you may have added, etc.

The payment you receive will help you buy a new car, but it probably won’t be enough for a new model of the same car (unless you have new car replacement coverage). And it may not be enough to pay off your loan or lease (unless you have GAP coverage).

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What Steps Should a Car Owner Take If a Car Is Totaled?

There are a few things that need to happen to get you back on the road ASAP after a serious accident:

Contact Your Insurance Company

No matter who’s at fault for your car’s damage, you should notify your insurance company immediately. Most insurance companies are available 24/7 to take your claim by phone, online, or app.

Assess the Damage

The insurance company will send an adjuster to inspect your car and estimate the cost of repairs.

Calculate Your Car’s Fair Market Value

The insurance adjuster will do some research to determine your car’s fair market value — and you can do some homework, too. You can use the Kelley Blue Book to get an idea of what your car was worth before the accident (using the make, model, mileage, and when you bought your car). Or you can check online to see what similar cars in your area are selling for.

Contact Your Lender

If you’re still paying off your car loan, or you’re in a lease, you should inform the financing company that the car was damaged. It’s also important to keep making payments until you settle your insurance claim, so you don’t hurt your credit.

Negotiate Your Insurance Company’s Payout

If you can convince the insurance company that your car was more valuable than the amount they’re offering, they may adjust the payment you receive. The insurer may ask you to provide paperwork that shows the car was worth more, so it’s a good idea to keep your receipts and maintenance documentation. Or you may decide to hire a private appraiser to see if you can get a higher estimate. (You’ll have to pay for this service yourself.)

Get Your Payment — And a New Car

If you own the car outright, the insurance company will send you the money — often within a few days. You can use it to shop for a replacement.

When you have a car loan, your insurer will send the appropriate payoff amount to your lender and the rest (if applicable) to you. If you have a lease, the insurer will send the payment to the leasing company.

What Happens to a Totaled Vehicle After Filing a Claim?

Generally, after an insurance company decides a car is a total loss, it will take possession of the vehicle and, when the claim is settled, sell it as salvage. But the car’s final destination may depend on state regulations and whether the owner wants the car back.

Can You Keep a Totaled Vehicle?

You can talk to your insurer about the possibility of buying back the totaled vehicle if you want to keep it for sentimental reasons, or because you think you can fix it or use it for parts. This is allowed in some states, but you may have to work with the local DMV to complete the purchase.

If you hope to get the car back on the road, you can expect to go through several more steps. It will have to be fixed and pass an inspection, and you’ll have to get a new title. You’ll also have to register the car and insure it.

If that turns out to be a few too many hoops to jump through, you may end up selling it to a junkyard yourself. Or you can sell the parts to interested individuals. You also may be able to donate the car to a local charity.

Before you negotiate with your insurer to get your car back, you might want to check on whether it’s legal in your state and — if you plan to drive it again — what kind of insurance you can get on a car that’s been declared a total loss.

Can I Decide If My Car Is Totaled?

No. The insurance company must decide if the damaged vehicle is a total loss based on its value and the cost of repairs.

Understanding Your Coverage

Being in a serious collision can be stressful, whether you’re responsible or someone else is determined to be at fault. You may be hurt or hospitalized. Understanding how car insurance works, and what it will and won’t cover, can help you prepare. And it might take your stress down a notch in the aftermath of an accident.

An accident may prompt you to reassess how much auto insurance you really need. After all, more coverage means higher premiums, and vice versa.

An online insurance marketplace can help you decide what types of coverage you want, and whether getting GAP coverage or a policy with rental car reimbursement coverage is a good strategy. Your lender or leasing company, as well as your state, also may have specific requirements for how much insurance you must carry.

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

The Takeaway

If your car is so badly damaged in an accident that the cost to repair it will be more than it’s worth, your insurer may decide to declare the vehicle a total loss. This means the insurer will give you the car’s actual cash value (based on its condition just before the accident) instead of paying to have it fixed.

Of course, you’ll only receive payment if you have the right kind of insurance coverage. Even then, the settlement likely won’t be enough for you to replace your wrecked car with a new car of the same make and model. Also, if you owe more on your car loan or lease than your insurance says your totaled vehicle is worth, you can end up having to pay the difference.

If you want to be proactive about your insurance coverage, SoFi can help you compare your current auto insurance policy to what other top insurers are offering. SoFi will walk you through the process of getting the right coverage for your needs.

FAQ

How do insurance adjusters determine the value of a car?

An insurance adjuster will assign the car a value based on its pre-crash condition and what similar models are selling for. The “actual cash value” will factor in the car’s age, wear and tear, mileage, and other equipment you may have added, including the condition of the tires.

What happens if insurance doesn’t pay enough?

You can try to negotiate with the insurer to get a higher payout, but you should expect to back up your request with documentation. Or you may decide to hire a private appraiser to give you a second opinion of the car’s value.

What happens when your car is totaled and you still owe money?

If you’re still making payments on your car when it’s totaled, the insurance company will send the appropriate payoff amount to your lender and the rest of your settlement to you. If the insurance payment isn’t enough to cover what you owe, you may have to pay the difference.

Photo credit: iStock/Jorge Villalba

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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.

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