What happens if my car is written off while I’m still paying finance?
So you’ve just got your hands on a great little runner using finance, the payments are going well and life is pretty good. Then – wham! – you’re involved in a crash and your shiny new car is now a write-off. What happens now?
If this is the position you’ve found yourself in, the first thing we want to say is don’t panic. We know it can be very unsettling when you’ve had a car accident. And, if you, a family member or a mate was hurt, the last thing you want to be worrying about is what’s going to happen to your car payments.
Here we’ve tried to answer the questions we think you’ll have. We’ll tell you what happens to your car when it’s written off, and what you can do about it. So, all you need to concentrate on is finding yourself a new car and getting back on the road.
First, let’s have a little look at what a write-off actually is.
What is an insurance write-off?
Basically, a car will be an insurance write-off if it costs more to repair than the insurance company thinks it’s worth. So, if the car is worth £3,000, and will cost £5,000 to repair, it’ll probably be written off.
Now, before we move on, we need to make it clear that you don’t have to accept that the car is written off, you can challenge it. But we think that’s a whole blog in itself, so we’ll be covering that next week, pop back then.
If you’re happy to accept that the car is a write-off, you’ll be offered a settlement price – not surprisingly, this is the amount the insurance company is prepared to pay you for the car. What you’re offered may cover the amount you borrowed on finance for the car, or it may not. If it doesn’t, and you’re still paying for finance, you’ll be left with a shortfall.
For example, you buy a car on finance for £5,000 and you’ve already paid off £1,000. You are involved in an accident and the car gets written off, but your insurance company only want to pay you £3,000 for it. If you pay that £3,000 to your finance company, you’ll be left with another £1,000 to find.
If you also need to get a new car, finding the cash to pay for a new car and the payments towards the £1,000 that’s still outstanding on your current finance agreement, is going to be tough.
Do I still need to make monthly finance payments if my car is written off?
The short answer is, yes. We know that might seem daft, especially if the car is pretty bashed up and likely to be written off. But, until it’s been officially written off, you will need to keep paying for it.
And please heed our advice – it may be oh so tempting to just stop your monthly payments. But, if you do, the finance company will do the usual chasing, and you could end up with defaults on your credit file, which you really don’t want.
So, while it may seem unfair to pay for something you’re not able to use, it’s better than risking damage to your credit score. This will likely make it harder, and more expensive, to get finance in the future.
Have a look at How can I improve my credit score if you need some help with that.
What should I do once my car is written off?
Once you know your car is going to be written off, and you’ve got the settlement figure from your insurance company, call your finance company and speak to them. Just another quick point here, the settlement figure is something else that can be challenged, and we’ll cover that in next week's blog too.
Okay, back on track. What’s possible will depend on the finance company your agreement is with and their policies, but there are a couple of things that might happen:
They may be happy for you to use the insurance money you receive to buy another car. When you’ve done this, you’ll just continue to pay off the finance as before.
You could ask to buy your car back, even though it’s a write-off, and cover the repair costs yourself. You can only do this if your car is a category C or category D write-off. These two categories are considered a write-off purely for financial reasons, so they’ll cost more to repair than they are worth.
If your car is a category A or B write-off, unfortunately, it’s been decided that the car is too badly damaged to be roadworthy, even with repairs. This sadly means that you will not be able to buy it back for repair, even if you want to.
It’s also worth bearing in mind that finance companies are, if they’re FCA regulated, obliged to do all they can to help you. So it’s always worth putting forward your suggestion for a solution to the problem. After all, they want the finance agreement to continue as much as you want the car.
What is GAP insurance?
One last thing you should check is whether you have Guaranteed Asset Protection Insurance, which you’ll more likely know as GAP. Why? Because when you take out finance, this is often offered as an add-on for this very situation. And, while we really hope you won’t need it, if your car is written off while you’re still making payments on your finance, GAP insurance could be a life-saver.
Find your finance documents and see if there’s anything detailed in them. If you can’t find anything, it’s worth giving your finance company a call, just to be sure.
And there you have it – what happens to your finance when your car is written off in a nutshell. If you still have queries, all you need to do is call us, we have people here who can help you.