Three days ago I got a phone call from a gentleman whose three-year-old minivan had been totaled in a crash, not his fault. Because he had financed the vehicle over six years, he still owes over $12,000 on the vehicle, yet has been told that he will only get $9000 for replacement cost because that is all the vehicle is worth.
As more and more cars get more and more expensive, and the loans go out longer and longer, this is going to be a very common situation if the crash is severe enough to total the vehicle. A person whose negligence causes a vehicle to be a total loss isn't liable for the amount that's owed on the vehicle, but rather only for the reasonable value of the vehicle pre-crash. This is where something called "gap insurance" can come in handy. This is insurance that you can buy which will cover any gap between the value of the vehicle and what is owed on the loan. If you are buying a new vehicle this insurance is cheap and I would highly recommend that you purchase it and make sure that it goes out far enough to cover the vehicle and any gap until it's reasonably certain that what you OWE against the vehicle is equal to or less than what it's worth.
My new client is now going to be faced with the prospect of getting only part of his loan paid off for his totaled vehicle, still having to pay the bank on that original loan, and then having to go out and take out another loan to get another vehicle. Merry Christmas.