When a financed car is totaled, the owner's insurance company will issue a payment based on the car's fair market value, and the car's owner is responsible for any difference owed on the loan. In most cases, the insurance payment is sufficient to pay back most, if not all, the remainder on the loan, but not enough to purchase a replacement vehicle.
Insurance companies declare a car a "total loss" if the cost of repair exceeds the estimated fair market value of the car. Owners of totaled cars can ensure they are getting a fair price by asking insurance companies to take into account any extras or performance packages that were installed.
As a preventive measure, owners can purchase guaranteed auto protection, or gap insurance. Gap insurance pays the difference between what an insurance company pays for a totaled car and what the owner actually owes.