QuestionHi Doctor, We were leasing a Honda Civic from Honda Finance Corp of America and the car was in an accident near the end of the lease. The insurance company totalled the car, thus paying off our lease and closing our account with Honda. Subsequently, we weren t able to get a new lease with Honda because of credit issues. Whereas, if we had been able to have the first car repaired, we would have been able to extend the existing lease. Do insurance companies have any obligation to us when a leased vehicle is concerned...or is their business striclty with the leasing company?
Answer
Dear Cory,
This is a frustrating situation, but it is governed by the terms of your lease. Having a car "totaled" is just a numbers game, that is all. Various companies differ in their definition and decision of when to "total" the car versus repair it. But generally, when the cost of repairs exceeds some percentage (i.e. 75%) of the actual cash value of the car BEFORE the accident, then the company will "total" the car rather than repair it.
If you owned the car, you could do a couple of things. First, you could lower the cost of the repairs (as discussed below), and thereby save it from being totaled. OR, second, you could let them "total" the car, pay you the actual cash value (less what you owe the bank), and then arrange to buy back the salvage with some of your money you received from the cash settlement.
Neither of these options is available to you in the case of a leased vehicle. To see the difference, let's first consider the hypothetical case where you "own" the car, but still owe a bank for some of the purchase price.
In THAT case, you have the right to repair with used and/or NON-Original Manufacturers Equipment (called "OEM") parts, thus lowering the cost of the repairs and allowing you to retain the car. It is YOUR choice because all the bank is to your car is the lien holder.
Also, in the case where you "own" the car subject to the lien of the bank, and they "total" the car, you will (hopefully) have paid down the loan sufficiently so that you will get some money back from the payment of the actual cash value.
You can use that money to buy back the car from the insurance company as salvage, have it repaired with used and/or NON-OEM parts, inspected by the state patrol, and re-licensed
By comparison, I will bet that your lease would forbid you from doing the same thing with a leased vehicle because at the end of the lease, there is a darn good chance that the leasing company could end up with the car. They do NOT want to take the risk of having a car that has been repaired with used and/or NON-OEM parts in their inventory, and thus they will exercise control to forbid you from doing that.
If you cannot reduce the cost of the repairs with used and/or NON-OEM parts, then the decision to "total" the car is not yours; it will rest with the leasing company. You ask, "WHAT HAPPENED TO OUR EQUITY IN THE CAR? Why don't we get any of that money paid to the leasing company?" Hey, that is one of the big disadvantages of leasing. When you are paying all of those monthly payments all you are earning is the right to buy back the car at a certain price at the end of the lease.
It seems fair when you are into the lease up to a couple of years. But in the last six months of the lease, your right to purchase back that car for a price below the actual cash value could be considered an asset. Some time someone is going to sue in a class action on that issue, but don't hold your breath waiting for it since there is no big push to get recognition of such "rights".
By contrast, the person who has paid down a bank loan will probably (but not always) get some equity from the car.
If you have any cash, this is the time to strike a deal with the leasing company. They will just send the car out to auction as a salvaged vehicle. The purchaser will have to re-license the car. Hopefully, you have put aside some cash or you can borrow from a family member.
You can buy the car back as salvage and proceed as above. The cost of repairs will be a lot less with used and/or NON-OEM parts, and the state patrol inspection is about $50 to $100. The licensing cost will be figured as with other vehicle purchases, with the taxable price being the cost of purchase as salvage, PLUS the cost of repairs. By the way, if you go this route, be sure to save your repair receipts since you will need them.
I trust that this information has been of value to you, and thus I would respectfully request that you find the feedback form on this website and take the time to leave some feedback for me.
Best wishes,
Dr. Settlement, J.D.
Http://www.SettlementCentral.Com
