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Lending a car to a friendIan Aronovich learned the hard way that lending out a vehicle can be an expensive mistake.

Aronovich, president of GovernmentAuctions.org in Great Neck, New York, let a friend borrow his Piaggio scooter. "Not even 30 seconds after getting on, he slammed into a brick wall because he didn't know how to stop," says Aronovich.

Thankfully, his friend wasn't hurt, but the scooter was. Although Aronovich had insurance, his friend stepped up and paid the $700 in damages over the course of a few months.

While Aronovich’s friend did the right thing, you might not be so lucky.

  • Loaning your car out can have serious repercussions as you are lending your car insurance, too. Insurance follows the car, not the driver.
  • If you want your car repaired after your friend crashes it, you’ll need to file a claim against your own collision coverage and pay the deductible.
  • If your policy limits for liability coverage, what covers those that are harmed by your car, are exceeded, then your friend’s car insurance policy can be looked to for secondary coverage.
  • Loaning out your car is serious since you could both end up being sued and your personal assets -- house, car, even your retirement savings – put in jeopardy.
  • If you are the friend that crashed the car, you have options on how to repair it. You can pay for the car’s damages out of your pocket, if you can afford it, or at least offer to pay your friend’s deductible.

It’s your problem

Loaning your car out can have serious repercussions. You are lending your car insurance, too. Insurance follows the car, not the driver.

"As a car owner, you always have vicarious liability for anyone you allow to operate your vehicle," says Penny Gusner, consumer analyst at Insure.com. "You can't throw your hands up and say ‘not my problem’."

You may not have been behind the wheel, but it’s your liability insurance that will pay for any damage or injuries inflicted on others. If you want your own car repaired, you’ll need to file a claim against your own collision coverage and pay the deductible.

But a claim on your policy could be the least of your problems.

Far-reaching consequences

In a serious accident, your policy limits may quickly be exceeded.

What happens next depends on your friend. Assuming he has car insurance of his own, his policy will pay out to cover the remaining damages, up to his policy limits. Or he might not have car insurance of his own at all.

But once your coverage and his are exhausted, you could both end up being sued and your personal assets -- house, car, even your retirement savings – put in jeopardy.

You could see a courtroom for other reasons as well.

“You might not think to ask to see a friend’s license or ask where he’s going, but as a car owner you are expected to take reasonable care,” says Des Toups, managing editor of Insurance.com. “You’re the one who could get a ticket for allowing an unlicensed driver behind the wheel. Your car could be impounded or seized for good in a drug bust.”

While you may dodge a lawsuit or a date with the legal system, the thorny issue of money and friendship still awaits.

What are your options?

Let’s assume you borrow a car from a friend and are involved in an accident. The damage is well within your friend's policy limits, so you don't have to worry about a lawsuit.

What exactly are your options? Basically it boils down to your budget and how strongly you believe in karma.

Do nothing. Technically, if you wreck someone's car, you can walk away as long as the damage falls within the vehicle owner’s insurance policy limits. "In regards to the car owner, you would not have any legal obligation to that individual. They made the decision to loan you the vehicle," says Michael Rehm with The Law Office of Michael Rehm.

In most cases there will be no repercussions for you or your insurance premium. But you will almost certainly lose at least one friend.

The friend could sue you to recover damages, but he would need to prove you were negligent.  "As an example, if a deer ran in front of you and there was no way to avoid the accident, your friend will not be able to sue you," says attorney Thomas J. Simeone of Simeone & Miller in Washington, D.C.

Pay the damages out of pocket. Your friend's only crime is lending you a car. He or she now faces a deductible payment, an increase in insurance premiums, and, if the accident was serious enough, a lawsuit.

The right thing to do is pay the damages out of your own pocket. (See “How to handle an accident on your own.”)

Unfortunately, doing the right thing can be expensive. According to CCC Information Services, the average crash appraisal came in at $2,550 in 2012. Even if you simply backed into a wall, the damages will most likely be over $1,000.

A serious accident that includes bodily injury claims would push the total cost well beyond most people's budget. The average bodily injury claim was $14,653 in 2012, according to Verisk Analytics.

Pay the deductible and incidentals. If your checkbook can't handle a big hit, what is the next best option?

"If you can't afford to pay the full cost of the damage done, at least offer to cover the policy deductible, rental car and any other unforeseen expenses," says Jacqueline Whitmore, an international etiquette expert.

Deductibles on collision coverage vary, ranging from $250 up to $1,000 and even higher. Nearly 75 percent of drivers choose a $500 deductible, according to Insurance.com data.

According to the J.D. Power 2014 U.S. Auto Claims Satisfaction Study, on average, it takes 13.4 days for a vehicle to be repaired and returned. Figuring a conservative $30 a day, you are on the hook for another $400 to cover rental car expenses.

Finally, covering the rate increase for the next three years (or as long as it applies) will go a long way in mending fences.

Rate increases vary dramatically between insurers and the details of the accident. According to Gusner, rate increases could be as little as 10 percent or as high as 40 percent. Over the course of three years this could add up to some serious coin.

Compromise. Your final option is to come to some type of agreement or compromise. If you truly cannot pay the damages or the deductible a compromise may be your last best choice.

Don Fishback had to accept a compromise when his daughter loaned her car to a roommate who promptly crashed it.

"Our deductible was $1,000. The roommate's father told us to file an insurance claim on our policy, but we objected because it could have caused a rate adjustment,'" explains Fishback.

Luckily they were able to come to an agreement. "When the car was appraised the damages only amounted to $1,200, so the friend's father agreed to pay for half of it. All was solved," says Fishback.

Compromises come in all shapes and sizes; only you and the other party can come to an agreement that works for both of you. Whitmore offers one final piece of advice:

"Accidents happen. Don't let finances ruin a friendship or alienate a family member."

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