Car Laws & Safety

How Does an Accident Affect a Car Lease

Everyone loves that new car smell, and one of the easiest ways to afford that shiny new car is to lease it. Leasing a vehicle allows you to drive off the lot with a newer model. One with more gizmos and gadgets than a traditional auto loan.

And it’s usually much more affordable. One in 4 cars on the road today is a leased vehicle. With so many people leasing cars, it is essential to know what happens when you are in an accident.

Overall, being in an accident will not break your lease. It will not prevent you from leasing again. However, you could owe the diminished value of the car or pay for damages equaling thousands of dollars. And you will see increases in insurance costs.

Ask yourself, is the vehicle repairable? If so, make sure you check to see if you can file a diminished value claim for your car.

What To Do After Accident With Leased Car

If your car is deemed a total loss by your insurance, you will need to file for your gap insurance to cover the diminished value of your lease. In either case, call your insurance and see how the accident may affect your premium and see what you can do to reduce costs. 

First Steps After an Accident

In the aftermath of an accident, you should follow the standard guidelines for vehicle accidents. First, call the police, then contact your insurance company. The final step you must take is to call your leasing company.

You must report all accidents with your leasing company within a few days of the accident. This is in most leasing contracts unless discussed explicitly at the time of signing. Leasing companies are technically the owners of the vehicles and need to be aware of their assets.

Once all the necessary parties have been informed, your insurance company will determine the next steps.

Leased Cars That Can Be Repaired With Full Coverage

The best thing for all parties is if you can fix your car. If the vehicle can be repaired, then it is pretty much like any other accident with any other vehicle. The insurance company will cover the cost of the repairs after you pay the deductible.

Once the auto shops are done with their work, you can pick up your car and continue to enjoy it until the end of your lease. Remember to continue to make your payments even while your vehicle is in the shop; you are still under lease even if your car is in the shop.

It is essential to know that leasing companies will require you to use pre-approved auto shops for any repairs for a leased vehicle. This list of locations should be disclosed to you from your leasing company should you need it.

Then, you should be able to call to get it. You are also required to use OEM parts (original equipment manufacturer) when repairs are made. These can be costly, but it is worth doing your homework and making sure you do not use parts that are not acceptable to your leasing company. This can result in additional fees at the end of your lease.

What To Expect at the End of Your Lease for Cars That Have Been in an Accident

At the end of the lease, you will undergo an inspection. You could be charged for any damages that have occurred to the car deemed outside any expected wear and tear.

In addition, any accidents that occurred during your leasing period covered by your insurance can come back to haunt you during your inspection. This is called “diminished value.”

You are expected to pay this diminished value for your leased car even if you repaired it after the accident. This can cost thousands of dollars. However, lessees have some options to consider if they have significant expenses during the inspection process. 

Dealing with Diminished Value Due to Accidents

  1. If you have the money available, you may decide to pay the diminished value of the car and move onto your next vehicle. This is the simplest option and one that takes the least amount of time, but it is also the one that may cost you more money.
  2. Some lessees may not have the cash to pay up, and therefore will need another option. You may decide to renew your lease. You will then have a slightly higher payment due to covering the new depreciated value of the vehicle. 
  3. Another option would be to buy out the leased car. In this option, you would apply for a traditional auto loan. Still, the expenses of the depreciated value and other wear and tear that you may have been charged with are forgiven. Your loan amount would only be the cash value of the car. 
  4. If you are not at fault for the accident, you can sue the at-fault driver for the diminished value of your leased car. If you can do this, you can pay your leasing company after settlement, so you will not have a hefty bill to pay when your lease is up. 

It is essential to know that some states’ insurance policies will not pay the vehicle’s diminished value because lessees are not the “true owner” of the car. So make sure you know if you have this option available to you.

States that allow diminished value claims include Arizona/ Colorado/ Florida/ Georgia/ Illinois/ Indiana/ Iowa/ Kansas/ Louisiana/ Maryland/ New Mexico/ New York/ Oregon/ South Carolina/ Virginia

Leased Cars Deemed a Total Loss With Full Coverage Insurance

In the tragic event that your leased car is deemed a total loss by your insurance company, they will pay out the cash value of the vehicle to the leasing company. But there is a difference between the cash value of the car and the amount the leasing company expects you to pay.

When leasing a vehicle, you typically pay the expected depreciated value through your bill throughout the leasing period, but this does not include damages due to accidents. Once your car has been in an accident, even the best insurance cannot pay the original market value. 

As the lessee, you are expected to pay the difference. This can save many people from difficulty in the event of a total loss. Gap insurance is special insurance that covers the cost difference between what you owe in the lease and the car’s cash value. Most leasing companies require this insurance before approving you for the lease. 

Rolling Over Depreciated Costs Due to Diminished Value

Some leasing companies allow you to roll the remaining cost of your lease into a new lease if the accident was not your fault. This may be the only option for some, but it should be seen as a last resort option. 

Once you roll in these old expenses to a new car, you will be paying for both vehicles simultaneously. One strategy to help would be to pay double during the new lease, so you can make sure you have covered the expenses from the car in the accident. 

At-Fault Drivers Can Pay for Diminished Value

Just as if the car is not totaled, you can also sue the at-fault to cover damages, including the amount not covered by insurance. You do this by filing a Diminished Value Suit. Then, you can pay off the remaining balance on your lease. 

The following states are known to allow drivers to file a diminished value claim with the at-fault driver’s insurance company:

  • Arizona 
  • Colorado 
  • Florida 
  • Georgia 
  • Illinois 
  • Indiana 
  • Iowa 
  • Kansas 
  • Louisiana 
  • Maryland 
  • New Mexico 
  • New York 
  • Oregon 
  • South Carolina 
  • Virginia

 Accidents in a Leased Car Without Insurance

As mentioned before, if you have an accident, it does not break or end your lease. However, whether the car can be repaired or not, you owe the leasing company the total amount of the vehicle in the condition the vehicle was in when you drove off the lot. This is why it is so imperative to have insurance.

And not just basic coverage but full coverage and gap insurance to cover the cost of diminished value. Otherwise, you may find yourself owing the total amount of the vehicle to the licensing company even after the car has been seized by the wrecking company. 

To apply for a lease, you are required to have and keep full coverage insurance with low deductibles on your car. Suppose you end your insurance policy for any reason during the leasing period. In that case, you are technically in violation of your lease. Leasing companies can cancel your lease and even sue you if it becomes known that you do not have adequate car insurance. 

Driving Without Insurance Penalties Differ By State

After an accident, both parties will need to share insurance information. If you cannot provide this information, you could be looking at severe penalties. Each state has its own penalties for driving without insurance, but some of the most common penalties include:

  • Up to $5,000 in fines
  • Suspended driver’s license
  • Suspended vehicle registration
  • Reinstatement fees for suspended license and registration
  • SR-22 requirement
  • Jail time
  • Mandatory community service
  • Vehicle impoundment

Totaled Leased Cars Without Insurance 

If you find yourself dealing with an accident without insurance, there are a few things to consider. First, if your car is totaled, it may be best to sell your car for parts. Second, after an accident, your vehicle will have diminished value. Therefore, you will only receive a small amount of money for the totaled car.

This does not cover the total amount you owe to your leasing company, but it can help reduce the costs. Then you can work out a plan to make payments over time to pay off what you owe.

If you are not the at-fault driver, then you can sue their insurance for diminished value and even for the value of your vehicle in full. If you are the at-fault driver, or both parties are deemed at-fault, then you will not be able to file the claim with the other driver’s insurance. 

Repairable Leased Cars Without Insurance

If you are in an accident, but your leased vehicle is not totaled, then you have a few more options. If you are not the at-fault driver, you can still file the claim with the at-fault party’s insurance, and they will cover the cost of repairs. In this case, dealing with your accident is the same as having insurance.

However, your leasing company may decide to cancel your lease for violating your contract and ending your insurance coverage. While the other driver’s insurance will pay for damages, you may be charged extra fees for breaking the agreement.

However, if you are the at-fault driver, you will have to cover the repairs for your leased car out of pocket. Some auto-shops have financing options for car owners. This way, you can get your repairs started and pay over time.

At the end of your lease, you will still be responsible for the diminished value of the lease, so be prepared to pay for this. You will not be able to sue for reduced value if you are the at-fault driver.

During this time, your leasing company may decide to cancel your lease due to contract violation due to inadequate insurance. If this happens, you will still be responsible for covering the diminished value of the vehicle. 

Also, as the at-fault party, you will be expected to cover the damages for the other vehicle, which can cost thousands of dollars. If you do not have insurance, then the other driver’s insurance company will most likely file a suit against you. Therefore, it may be best to have legal representation. 

Getting into an Accident with Someone Who Does Not Have Insurance 

As a leased car owner, it is most likely that you have the insurance dictated by the leasing company. This is full coverage with low deductibles that covers the most for any vehicle. However, even with the best insurance, you may find yourself in an accident with an uninsured or underinsured motorist. 

It is typically illegal in most states for a person to operate a motor vehicle without insurance. So many companies offer very affordable options. However, these options do not cover much if the driver is at fault.

Find yourself in an accident with someone uninsured, and they are the at-fault party. Your own full coverage insurance will cover your damages and sue the at-fault party separately to protect their own expenses. 

If you are at fault and the other driver is uninsured, your coverage will cover their damages along with yours. You will not be able to claim diminished value on your leased car if you are at fault. Therefore, you may need to determine other options to pay your leasing company back at the end of your lease. 

Getting A New Lease with Accidents on Your Record

Leasing companies care about two main things when giving out leases: credit score and your insurance policy.

Technically they do not care about your driving record. So even if you have accidents on your record, you will not be prevented from leasing another car should you wish to. But your insurance is another story.

After being approved for a new lease, you are still expected to have the best total coverage available to you. With an accident on your record, your insurance premium may go up.

However, most leasing companies expect you to have policies with the lowest deductible possible. Therefore you may find that it is no longer cost-effective to lease a car after an accident. Accidents are eventually removed from your record after about seven years. 

What Happens to Your Insurance After an Accident?

All insurance companies will increase your premium rates after an accident, but the question is, how much? Depending on the type of coverage, this can vary from $165 to $850.

If you have not had any accidents in the past five years, you may qualify for accident forgiveness. This will prevent the first accident from increasing your premium. This can be especially beneficial for lease owners since leasing requires such extensive insurance. 

While accidents can make any car ownership difficult, leasing a car can still be worth it. You get to drive a brand new car with all the modern-day technology without the high-interest rates of traditional auto loans.

The main thing to remember is to always have gap insurance and keep a list of pre-approved auto shops handy. And know if your insurance offers diminished value claims. If you did not have an accident and are having second thoughts about your car lease, you can call the lease company to find out what your options are. 

Welcome to my car seat blog! As a mom of 3, I put together with other hard-working moms a highly informative one-stop car seat resource, full with many reviews and buyer guides. I hope you find it invaluable. Thank you for trusting me & my team! - Keren