What happens if my car is written off and it’s on finance?

This is a question that’s been asked plenty of times over the years. If your car is written off while on finance and you still owe money, the insurance payout will usually be used to pay off the remaining balance. 

However, the payout might not be enough to cover the full amount owed. In this case, you will be responsible for paying the remaining balance. 

On the other hand, if the insurance payout exceeds the remaining balance, you’ll receive the excess amount. 

It’s important to carefully review your insurance and finance agreements to handle this situation smoothly and avoid unexpected financial challenges. Read on to learn more.

• The different types of insurance write-off categories
• The immediate steps following a write-off declaration
• Why GAP insurance is a good idea for cars on finance
• Next steps and possible outcomes for financed cars that are written off
• FAQs

The different types of insurance write-off categories

Categories A to N and the implications for your financed vehicle

If your financed vehicle is a write-off, it falls into one of four categories: A, B, S, or N. Each category has different implications:

💥 Category A: The vehicle must be scrapped entirely due to severe damage. The insurance payout will go towards your finance balance because the car cannot be repaired or resold.

💥 Category B: Similar to Category A, but some parts can be salvaged and sold. However, the car cannot return to the road, so the insurance payout is used to settle the finance.

💥 Category S: The vehicle has sustained structural damage but can be repaired. You may keep the car if repaired, but you must still settle the finances. If you choose not to repair, the insurance payout helps cover the finance.

💥 Category N: The car has non-structural damage and can be repaired. Like Category S, you can repair and keep the car or use the insurance payout to address the finances.

The immediate steps following a write-off declaration

First step: Contact your finance provider

If your car is declared a write-off, your first step is to contact your finance provider. Informing them promptly ensures they know the situation and can assist you through the required procedures. 

They’ll usually work with your insurance company to settle any remaining finance balance. Failure to notify your finance provider could lead to complications, such as continuing to make monthly payments for a vehicle you no longer possess.

Speak to your insurance company to ensure proper coverage

Next, contact your insurance company to report the write-off. Promptly provide all necessary details and documentation. Your insurer will assess the damage and determine the payout amount. 

Ensuring proper communication helps in accurately settling the claim and finance balance. Discuss any gaps between the insurance payout and your finance balance, as you might need to cover any shortfall.

The importance of notifying the DVLA and sending them documentation

Notify the DVLA about the write-off to update your vehicle’s status in their records. This step is crucial to avoid legal issues and ensure the car isn’t mistakenly recorded as still being on the road. 

You must send the V5C logbook to the DVLA, marking the car as written off. Proper documentation handling, including keeping copies for your records, ensures all parties are correctly informed and maintains legal compliance and clarity.

Why GAP insurance is a good idea for cars on finance

How GAP insurance works when your financed car is written off

GAP (Guaranteed Asset Protection) insurance covers the financial gap between the amount your insurance company pays out and the remaining balance on your finance agreement if your car is written off. Here’s how it works:

1. Insurance payout: When your vehicle is written off, your primary insurance policy will provide a payout based on the vehicle’s current market value. This amount may not cover the remaining finance balance due to your car getting older and losing value.

2. Outstanding finance: The finance balance is the amount you still owe on your car loan. Because cars depreciate quickly, the insurance payout may be less than you owe, leaving a shortfall.

3. GAP insurance coverage: GAP insurance bridges this gap. It pays the difference between your car’s market value, the insurance payout, and the remaining finance balance. This ensures you aren’t left out of pocket and don’t have to make up the shortfall yourself.

4. Types of GAP insurance:

• Finance GAP insurance: Covers the difference between the insurance payout and the remaining finance balance.

• Return to invoice GAP insurance: Covers the difference between the insurance payout and the car’s original invoice price.

• Vehicle replacement GAP insurance: Covers the cost of replacing your vehicle with a new one of the same make and model.

Next steps and possible outcomes for financed cars that are written off

Clearing the outstanding finance balance

When your vehicle is a write-off, the insurance payout usually goes towards clearing the outstanding finance balance. If there’s a shortfall, you’ll need to cover the difference. Contact your finance provider immediately to discuss options, including extending the loan term or adjusting payments.

Buying back and repairing your car

If your car is classified as Category S or N, you may have the option to repurchase it from the insurer and repair it. Work out if it’s worthwhile doing this by considering the car’s:

• 🔧 Repair costs
• 💷 Post-repair value
• 🦺 Safety

Obtain multiple repair quotes and compare them to the insurance payment. Ensure reputable mechanics do the repairs to maintain roadworthiness.

How to upgrade or replace your written off vehicle

After a write-off, upgrading or replacing your vehicle can be an opportunity. Use the insurance payout and additional funds to explore new or used car options. 

Remember to consider your budget, needs, and the benefits of upgrading, such as better fuel efficiency or advanced safety features. Research financing options, including dealer offers and loans. Plan thoroughly to make a choice that fits your financial situation and lifestyle, ensuring a smooth transition.

FAQs

What happens if my car is written off and it’s not my fault?

If your car is written off and it’s not your fault, the at-fault driver’s insurance should cover the payout. This payout will be used to settle your finance agreement, and any excess amount may be paid to you.

Can you fix a car that has been written off?

Yes, you can fix a written-off car if it’s classified as Category S or N. Assess repair costs and ensure a certified mechanic does repairs to maintain roadworthiness and safety standards.

How much does car insurance go up after a write-off?

After a write-off, your car insurance premiums may increase. The rise can vary based on your insurer, driving history, and the claim’s specifics. On average, premiums can increase by 20-50%, depending on the circumstances.

Is it time to sell your car?

Want to learn more about owning, maintaining, and selling your car? Check out more of our guides here, covering everything from finding buyers, to negotiating a good price, and completing payment safely.

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• Can you pay car finance off early?
• What is negative equity in car finance?
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• What background checks do you need for car finance?
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