No one ever wants to have an accident, and it can wreak havoc on our finances, health, and lifestyle. Also, as it turns out, even when your car is repaired “as good as new,” it will be worth less money than it was before the incident.

Depending on the circumstances of the accident, you may be able to recover the difference in the value of the vehicle. Still, when you’ve acquired your vehicle on a lease from a leasing company, the situation may be different.

This article tells you everything you need to know about how diminished value works with a leased car.

What Is Diminished Value?

If you’ve never heard the term “diminished value” before, let’s back up and break it down. Diminished value is the difference in the market value of your car before and after an accident. The general idea is that even if your car is perfectly repaired, the value of the leased vehicle in the marketplace is going to be lower than if the car had never been in an accident.

This is true even if:

–       The car is perfectly repaired to pre-accident condition

–       The damage was minor

–       The body shop did an incredible job, and no one would ever be able to detect the repairs

Unfortunately, the accident history follows a vehicle (even leased vehicles), resulting in it having a reduced value.

How Diminished Value Claims Work

There are varying laws by state, and, generally speaking, the at-fault driver’s insurance company will pay for the claim, but there are still some things you’ll need to know if you got your car from a lease company.

–       If you are the at-fault driver in the accident, chances are your claim will get denied. However, you may still be able to get a diminished value payout, but you’ll have to fight for it, and you might not succeed.

–       If the at-fault party does not have insurance or is under-insured, you may be able to file a claim with your own insurance company.

–       How these claims are handled depends on the state where you reside. You should also check your car insurance contract to see the claim’s verbiage. Even though you will traditionally file a claim through the at-fault drivers’ insurance company, you may need to go through your insurance company instead.

Why Diminished Value Claims are Different for Leased Vehicles

A diminished value claim can be filed by the owner of the vehicle, and as you have probably deduced, the person leasing the car is not the owner. Instead, the leasing company is the lessor, and they retain the title to the vehicle.

Of course, you can purchase the previously damaged vehicle after your lease, but if your vehicle is in an accident during the leasing term, the question of who gets the money from the diminished value claim involves additional moving parts.

How Diminished Value Affects Different Parties

Whether you are leasing the car (the lessee) or you are the one who leased the car to someone else (the lessor) may affect a diminished value claim.

Universally, however, neither the lessee nor the lessor is at fault for a situation where a car has diminished value (assuming that the lessee is not at fault for the accident), and therefore, neither party should be punished. The question often becomes who seeks compensation for the diminished value claim, so it’s important that you understand your options.

The Lessee

If you are reading this article, then you are probably the lessee. You leased the motor vehicle from a car dealership, and now you’re wondering how the accident will affect you financially. A few things to keep in mind:

–       You will have the same monthly lease payment. The car might not be worth as much, but you still have a contract for the leased vehicle payments.

–       At the end of the lease, the leasing company may try to make you financially responsible for the diminished value because you are returning a vehicle that has sustained damage.

–       If you decide to buy the car at the end of the term, you may still have to pay the total value of the leased vehicle, meaning you could end up paying more than the car is really worth.

The Lessor

Leasing companies that lease a vehicle to someone are highly motivated to make as much money per lease as possible. It can be frustrating for a dealer to find out that its legal property has been involved in a collision, and therefore is worth a reduced amount of money.

The lessor may decide to make the lessee pay the price of the reduced value, which can put the lessee in a vulnerable financial situation. To avoid this situation, the lessee could be proactive and get compensation for this difference in the event that he or she is on the hook for it at the end of the lease term.

The Bottom Line

Being involved in a crash when you have a leased vehicle doesn’t mean you should suffer financially. You may still be able to recover the diminished vehicle value. Contact Diminifax to learn more about what your claim could be worth.