What happens if my car is written off while I’m still paying finance?

If your car has been involved in an accident and you're still paying finance, the last thing to do is panic. Instead, follow our guidance for what you can do next.

It’s every motorist’s worst nightmare - you’re happily driving along as normal and, out of nowhere, you’re involved in a crash. Not only is there the potential to be injured, but there’s also the inconvenience of being without your car while it’s in for repairs - plus you also have the hassle of dealing with insurance companies.

But what happens if you crash a car on finance? And, even worse, what happens when a car is written off while you’re still making finance repayments? Let’s take a look at all the possible outcomes, to help put your mind at rest should the worst happens.

What is an insurance write-off?

There are two ways a car can be considered a write-off, with the decision usually in the hands of your insurance company:

• The damage is so bad that it can’t be repaired
• The cost of the repairs are more than the car is worth

In the second scenario, you might not think the car is beyond repair, but it might be written off because the repairs cost more than the amount the insurance company thinks the car could be sold for. If, for instance, the car is worth £3,000, but the repairs will cost £5,000, it’ll probably be written off.

Are there different kinds of car write-offs?

There are four write-off categories:

• Category A - This is when a car is so badly damaged that its parts should only be used for scrap, including any salvageable ones.
• Category B - This is when the car has significant damage to the body - which must be crushed - but has parts that can be salvaged and can be used as spares on other cars.
• Category S - This used to be known as Category C, and is when a car has suffered structural damage but is unsafe to drive until it has been professionally repaired.
• Category N - This used to be known as Category D, and is when the car is still structurally sound after an accident but might have some cosmetic or electrical damage, or non-structural damage to steering or brakes, which mean the car might not be driveable.

What happens if your car is written off?

If your car is written off by your insurer, you don’t have to accept their decision, but if you do you’ll be offered a settlement price –  this is the amount the insurance company is prepared to pay you for the car and should be equivalent to its value if it were sold in its pre-accident condition.

Once the offer is accepted, ownership of the car will be transferred to the insurance company and you’ll need to find a new car.

If my car is written off, how long before I get paid out?

If your car has been written off, your insurer will then begin to process your settlement. However, the time it takes to receive the money owed from the settlement can vary, depending on the circumstances of the write-off and whether you dispute the write-off decision .

You can also raise a dispute about the settlement amount, if you believe the car is worth more than your insurer is offering, which can slow down the process.

What happens if your PCP car is written off?

If you are paying for a car on PCP finance, you’ll still go through the same process to decide whether or not your car is an insurance write-off. If it is, you’ll be offered a settlement figure based upon the car’s pre-accident value.

But what if you crash a PCP car but the insurance settlement amount doesn’t cover the outstanding cost of your finance? Unfortunately, this means you’ll be left with a shortfall and will have outstanding finance repayments that still need to be made.

For example:

Let’s say you buy a car on finance for £5,000 and you’ve paid off £1,000 before you’re involved in a crash. The PCP car is written off but your insurance company will only 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, you’ll need to find the cash to pay for a new vehicle as well as the payments towards the £1,000 that’s still outstanding on your current finance agreement.

If this is the case, speak to the team at Zuto, to see if we can find a finance arrangement to suit your circumstances.

Do you still need to make monthly finance payments if your car is written off?

You need to keep up with the monthly repayments on your car until it’s been officially written off. Even though you won’t be able to use your vehicle, you’ll need to keep paying for it.

If you stop making the agreed repayments, the finance company will do the usual chasing and you could end up with defaults on your credit file. These can hang around on your credit file for six years and make it more difficult and more expensive to get credit in the future.

If you find yourself in this situation, Zuto has over 15 years of experience in providing bad credit car finance. It might also be worth taking a look at our guide to improving your credit score.

What should you do once your 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.

If your car is a Category S or Category N write-off, you’ll usually have one of the following two options to consider:

1. Use the insurance money to buy another car. When you’ve done this, you’ll continue to pay off the finance as before.
2. Buy your car back and cover the repair costs yourself.

If my car is written off, can I keep it?

If your car is a Category A or Category B write-off, 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.

What happens if you crash a car on finance?

It’s worth remembering that not all crashes end up with your car being labelled beyond repair. So what happens if you crash a financed car but it’s not a write off?

In short, if you crash a car on finance, you’ll need to go through your insurance company to cover the cost of repairs. This means you’ll also need to pay any policy excess if the claim is being made on your policy - for instance, if you were deemed at fault for the accident.

Importantly, you’ll still need to keep up with the monthly repayments while the car is in for repair.

What is GAP insurance?

Guaranteed Asset Protection (GAP) insurance makes up the shortfall between the amount you still owe for your car beyond repair on finance and the write-off settlement figure offered by your insurer.

GAP insurance isn’t essential and isn’t offered as standard, so you’ll need to check if you have this cover in place. If not, it might be worth arranging extra cover with your insurance company.

If you want to know how much car finance you can afford, our handy car finance calculator will give you a quick estimate and breakdown of costs with no impact on your credit score. And for even more help and advice about new or existing car finance, give the team at Zuto a call on 01625 619944.