Repair the car or spend the cash?

This post comes from Paul Michael at partner blog Wise Bread.

Over the past few months, I've been seeing cars in various states of disrepair. Big dents, dings, damaged windows and doors, bumpers scraping along the ground, you name it.

And it got me scratching my head and wondering: Are people choosing to take the insurance money and spend it on something other than the car repair? (See also: "Remove car dents quickly and cheaply.")

Now, obviously, some of these cars were just old and in need of some major TLC. But in the company parking lot alone I've seen several cars that are from 2007 or after and have big bad dents and other major body damage.

Clearly, these cars were involved in some kind of accident. Be it with another car, a lamppost, a wall, or an angry Transformer, something went wrong.

Knowing that most good citizens have auto insurance coverage, I also know that these people would have received some kind of payment to have the car fixed whether it was their fault or not.

I got sideswiped a few years ago, and the car sustained $4,500 worth of damage. I was given two options:

• Choosing a recommended repair shop to deal directly with my auto insurance company, and I would pay the deductible.
• I could get a check based on the price the adjuster believed it would cost to have the vehicle repaired, minus the deductible.

At the time, I chose the first option. I needed the car fixed immediately. I wasn't ready to start calling around for competitive bids, and I also knew that the place chosen by my auto insurance company would be held accountable by them if the repair was not done well.

But I wonder: How many say, "I can live with the dent; I'd much rather have the cash"?

It makes all kinds of sense to me. Some people don't care about the resale value of the car or how it looks. It's a mode of transport that gets them from home to work, shopping, or the ballgame. It's no big deal if it's not perfect, and a few thousand dollars is way more important than removing a dent from the door or fixing a crunched bumper. Post continues after video.

After that thought, I noticed damaged cars everywhere. I counted 23 in the parking lot at Target last week, and it was not a busy shopping day. True, some may have been very recently damaged and awaiting repair, but I saw a couple of major dents that had been very poorly spray-painted and a bumper that had been freshly covered with stickers.

Clearly, these were not people who took the insurance money for the car repair. They probably kept the cash.

Is it legal?

This gets us into some muddy waters. I did some digging on several auto repair sites, forums, insurance blogs, and so on. It seems that many people do, in fact, opt to cash the check and leave their vehicle in a state of disrepair. But this does have some ramifications.

First, if you don't own the car outright (and that's a large majority of us), then the bank is the lienholder, and the money for the repair is to keep the car in good condition until the loan has been paid off. They want the car to be repaired, and they have every right to see that you make good on it.

What's more, if the check is made out to both you and the lienholder, and you cash it, you could be liable for fraud charges and even jail time.

If you own the car outright, it's much easier to decide to take the cash and spend it on bills, a new TV, or anything else. I have read several stories on Auto Repair Service Guide of people who did just that.

"Thorax" said, "Yes, you can do that. I got about $800 for a scratch on my bumper. You couldn't really even see it unless you knew it was there or got up close. I decided to say screw it and keep the money."

"Young Ian" chimed in: "Yep, you can cash it. My mom did the same thing. Some guy hit our salvage title Prizm and she got like a thousand dollars for it. It was mainly cosmetic. She used it to pay bills. We still have a pretty ugly side, but she got a thousand bucks!"

Now, over to you

If you get in an accident and your car sustains cosmetic damage, do you get it repaired, or do you take the money and run? In these tough economic times, I can certainly see why many people would go for the latter option.

More on Wise Bread and MSN Money:

• How to find the lowest auto insurance rates
• 5 simple ways to cut your car expenses
• Why buying cars through a broker can save you a fortune
• A teen driver on your insurance?
• The most and least expensive cars to insure
• How to wreck an auto insurance claim