What happens if my car has been written off and it’s still on finance?

Accidents happen. When split-second decisions and challenging conditions make driving difficult at the best of times, even the most careful driver can end up facing the worst-case scenario. We’ve all been there and, as long as you’re safe, you’ll be able to handle what comes next. 

Once you’ve recovered and had a chance to assess the damage, you’re hit by blow number two: it’s a write-off.
 
Don’t panic; if your car on finance is broken beyond repair, your insurance will kick in. And if you have GAP insurance in place too or your standard pay-out is more than your loan balance, you could settle the rest of your loan and be back out shopping for your next set of wheels before you know it.

Assess the damage: is it really beyond repair?

So, when is a write-off really a write-off? It’ll usually be determined by your insurer and will either mean that your pride and joy is completely undriveable and destined for the great scrap heap in the sky or that it could be repaired, but the cost of getting the work done would be far more than the car is worth.
 
If you’re not sure whether the damage done means the car has entered write-off territory or not, don’t be afraid to call in the professionals. Unless you’re a mechanic (in which case, could you come and look at our rattling gearbox?), you probably won’t have the expertise to know whether your wheels are salvageable or not.
 
Book in with a qualified mechanic you trust and ask them to confirm whether it’s repairable and how much it might cost to get it back in working order.
 
Your insurer will usually require an official assessment (they might even have a list of official garages you need to visit) declaring your car’s a write-off before they’ll agree to pay out on your policy.

Check your insurance coverage

If you’ve been in an accident, once you’re safe, have checked that nobody is injured, and have determined if the emergency services need to get involved, your next call should be to your insurer.
 
Most car finance agreements will require you to have a fully comprehensive insurance policy in place. If your car is declared a write-off, they’ll usually spring into action (or stroll at least) and offer you a settlement figure based on how much the car was worth before your accident. You don’t have to accept this offer and can contest it if you think you’re being low-balled.
 
Depending on the value that your car has lost since you first signed your finance agreement, your pay-out may or may not be enough to cover your outstanding loan.
 
In that case, GAP insurance can step in to pay the difference  – if you have it, of course. As its name suggests, GAP is intended to make up the gap between the amount your insurer offers you and what your car was worth when you first bought it in the event of a total loss, whether it’s written off or stolen.
 
Each insurer – both GAP and standard – can have different methods for making a claim but, after notifying them by phone, most will ask you to complete a form online or send it in the post. You will then receive a cheque or a bank transfer of the agreed amount. If you have a Finance GAP policy, they might pay your finance provider directly.

Notify your finance provider

Next, make sure you let your finance provider know what’s happened as soon as you can.
 
If you’re not sure who your lender is, you can usually find their name on your bank statement. Most lenders will have their contact details on their website, and you can either give them a call, send an email, or do both if you’d like to speak to someone and have a copy of your communication in writing. They’ll then be able to explain the options available and ask you to officially notify the DVLA.
 
Even though the car is beyond repair, it’ll technically still be the lender’s property until you’ve paid off the outstanding loan. They might issue a settlement figure at this point or let you keep making monthly repayments until the loan term comes to its natural end.

What are your options for settling the finance agreement?

While a write-off will mean that your car is out of action, unfortunately, your finance agreement will still be going strong.
 
That means you’ll need to settle it before you’re free from making monthly repayments. You can ask your finance provider for the settlement figure at any time. This’ll be the amount left to pay on your loan minus any future interest. You might also need to pay a charge for settling the finance early.
 
There are three main ways that you can settle your finance:

Use your insurance pay-out

If your insurance company settlement is equivalent to – or more than – your settlement figure, you can use those funds to pay it. You’re then free to take out another finance agreement and buy a new car.
 
In some cases, you might be using the insurance pay-out from two different companies – your standard insurer and your GAP insurance provider. Depending on their policies, they may pay the money into your bank account or transfer it directly to the finance company.

Pay the balance yourself

If your insurance pay-out isn’t high enough to pay the outstanding loan or you’d prefer to keep the funds to use as a deposit in your next wheels (or a trip somewhere sunny), you could choose to pay the balance yourself.
 
Of course, this option depends on you having the savings available (or another type of loan ready to go) to cover the remaining balance but, once you’ve paid up, you’ll be free to find another set of wheels.

Transfer your finance to a new car

In some cases, especially if you’re still early on in your finance agreement, you might be able to transfer it to another car. This is also known as refinancing. In this case, you’ll be effectively taking out a new finance agreement to cover the remaining balance on your loan and pay for your new car.
 
Depending on the amount you need to pay and your credit score, you might have to agree to pay more each month or make payments over a longer loan term (which may mean you pay more in interest overall).

What If the insurance pay-out doesn’t cover the remaining finance?

Depreciation is the term used to describe the value cars lose over time. Don’t panic; this is natural and will happen even if you keep your wheels in pristine condition. It’s only rare and classic cars that escape this fate.
 
As your standard insurance will base its pay-out on the value of your car at the time it was written off, this could be lower than the amount remaining on your finance. This is known as negative equity.
 
In this case, you have a few different options:

Negotiate

If the figure isn’t too far off, you might be able to negotiate with your insurer. If you can prove by showing similar examples that your car’s low mileage and excellent condition means it would have been worth more than the insurer is offering, they might be willing to compromise.

Pay the balance yourself

This option does mean waving goodbye to at least some of your savings but if you can afford to pay the difference from your own pocket, this could be the most cost-effective way forward. You could also consider taking out a different type of finance like a personal loan but that will come with additional interest.

Use GAP insurance to pay the difference

There are a few different types of GAP insurance available but, typically, this policy will kick in to pay the difference between the amount of finance you have left to pay and the current value of your car (before the write-off).

What are the differences with a PCP or HP deal?

With both HP and PCP, it’s expected that your car will pick up some wear and tear over time, but a write-off? Well, that’s definitely more than a few bumps and scratches. 
 
With HP, it’s important to remember that you won’t own the car until you’ve made all your loan payments. Technically speaking, you’ve written-off someone else’s property and so you’ll still need to pay the outstanding balance on your loan. Unfortunately, once you’ve cleared your debt, the only thing you’ll now own is scrap metal.
 
PCP works in the same way as these loans are also secured against your car but there’s an extra sting in the tail. PCP deals come with a balloon payment – a percentage of the car’s value that is kept back until your loan term ends. Normally, you’d then have the option whether you want to pay (or finance) that balloon payment and become the car’s legal owner or simply hand it back to the lender.
 
Of course, if your car is now damaged beyond repair, handing it back won’t be an option. Instead, you’ll now be liable to pay the balloon payment no matter what.