Accidents happen – but if your car on finance is written off, you’ll need to take immediate steps to ensure that all relevant parties are informed. These parties include your insurer, the lender and the DVLA.
If you’ve written off a financed car, you must keep paying your finance until the settlement is resolved. Failure to do so will impact your credit score and may ultimately lead to repossession or legal action.
Typically, if your insurer determines your car to be a write-off, their payout will go to the lender rather than direct to you. However, if the insurance payout doesn’t cover the outstanding balance that remains on your finance agreement, you may still owe your finance lender money.
Below, we’ll outline what happens if you crash a financed car, giving you detailed next steps and advice.
What does ‘written off’ mean for a car on finance?
If an insurer determines that a car is ‘written off’, they’ve decided that the vehicle is either damaged beyond repair, or that any repairs will cost more than the car’s total value. The term used by insurers is ‘beyond economical repair’ (BER).
Insurers have four write-off categories:
- Category A – The car is so badly damaged that its parts are only fit for purpose as scrap (non-repairable).
- Category B – The car’s body has significant damage, but there are salvageable parts that can be used as spares for other vehicles.
- Category S (formerly Category C) – The car has suffered structural damage that makes it unsafe to drive until professional repairs are made.
- Category N (formerly Category D) – The car is structurally sound with either some cosmetic or electrical damage, or non-structural damage to the steering or brakes that might make the car undriveable until repairs are made.
When you make an insurance claim for a damaged car, your insurer will use these four categories to determine whether or not your vehicle is written off. This categorisation will then dictate how much your insurer will pay out for the damage.
Who owns a car on finance if it’s written off?
The owner of a financed vehicle that’s been written off depends on the finance agreement:
- HP finance – The lender owns the car until final payment is made
- PCP finance – The lender owns the car until a balloon payment is made
- Personal loan – You own the car outright because a lender only finances the purchase
What happens if you crash a car on finance with insurance?
If you’ve got an insured car on finance that’s been written off, you need to let your insurer, lender and the DVLA know as soon as possible.
The insurer will use the four categories above to determine the degree of vehicular damage. This damage will then inform the settlement price your insurer will offer.
The settlement fee is the amount that your insurance company is prepared to pay you for the car. If you think that the total is too low because you think the car is worth more than your insurer is offering, you can challenge it. Just be aware that this will slow down the process and delay your receipt of the payout.
If you accept the settlement fee and are the outright owner of the written-off vehicle, the insurer will make the payout to you. However, if you’re using a financed car, the insurer will typically make this payout direct to the lender.
If your insurer’s payout covers your outstanding car finance balance, your finance is cleared.
If the insurer’s payout is less than your finance balance, however, you need to make up the difference.
GAP (Guaranteed Asset Protection) insurance can act as a safeguard in these kinds of instances. In cases where your insurer’s payout is less than the outstanding amount you owe to your car finance lender, GAP insurance can cover the shortfall.
Insurer payout covers outstanding car finance balance | Insurer payout is less than outstanding car finance balance | |
With GAP insurance | No outstanding payments | GAP insurance covers this shortfall |
Without GAP insurance | No outstanding payments | You are responsible for making up the difference, and will face a fee |
What happens if you crash a financed car without insurance?
If you have a car on finance that’s written off and is not insured, you are liable for the outstanding balance on your finance agreement. Obviously, insurance is a legal requirement, but you may only have third-party or third-party, fire and theft insurance.
Without the insurance payout, you’ll be paying for this outstanding balance from your own pocket.
If you don’t make all necessary payments, you’ll face possible repossession of the vehicle or even legal action.
Having comprehensive insurance for a financed vehicle is a way to avoid facing high fees in case of accidents or vehicle damage.
Related: Does Car Finance Include Insurance?
What if the accident wasn’t my fault?
In instances where a car on finance is written off and you are not at fault, the other driver’s insurance should cover the payout.
You are still responsible for liaising with your lender until the balance on your account is fully settled.
Do you still have to pay finance after a write-off?
Until your car finance lender receives the insurer’s payout and confirms settlement, you are legally responsible for making your monthly finance repayments.
A car finance contract is a legally binding agreement, meaning the lender is owed in full, even if your vehicle is undergoing repair following damage.
If you don’t make your monthly payments, it will impact your credit score, and you may face further legal repercussions.
In some cases, your insurer’s payout may not make up the total outstanding balance that remains on your car finance. In these cases, you’ll be responsible for making up the shortfall, unless you have GAP insurance.
What is GAP insurance and how does it help?
If your insurer’s payout is less than the outstanding balance on your auto finance agreement, GAP insurance can make up the remaining cost so that you don’t go out of pocket.
For example, if your total finance balance is £12,000 and your insurance payout is £10,000, you’ll have a £2,000 shortfall. If you’ve got GAP insurance, this will make up the outstanding balance. Without it, you’ll be expected to pay the two grand yourself.
Be aware that GAP insurance isn’t offered as standard. As such, if you’re looking to insure a car on finance and are concerned about your options in case of accidents, speak to your insurance company about GAP insurance. It’s especially useful in the first two to three years of car ownership.
Step-by-step: what to do if your financed car is written off?
If your car on finance is written off, take the following steps:
- Take photos of the damage and the numbers and car registration of all involved parties. Keep a note of other important information regarding the accident.
- Inform your insurance provider
- Notify your finance company
- Wait for insurer valuation and settlement offer
- Check outstanding finance balance vs. valuation of payout
- Consider GAP insurance (if active)
- Resolve any shortfall, if necessary
Moving forward after a car write-off
When your car on finance is written off, it can feel stressful. But with insurance and finance support, it’s more than possible to find a manageable way to move forward after a car write-off.
My Car Credit can help drivers like you find affordable auto finance for a replacement vehicle. Alternatively, if you’re looking for your next drive after fully paying off your previous motor finance agreement, use our car finance calculator to work out the kind of deal that might be most suitable for you.
FAQs about what happens if you crash a car on finance
What happens if I crash a financed car and it’s my fault?
If you crash a financed car and are at fault, you need to inform your insurer. They’ll assess the scale of damage and determine any payout. You’ll need to keep making your monthly finance payments and inform your lender about the crash and any liaison with your insurer.
What if my financed car is written off and I still owe money?
If your financed car is written off and you have outstanding finance to pay, you’re legally liable to repay this in full. Your insurer will offer a payout based on the degree of vehicular damage. This payout is then put towards your outstanding finance balance. You’ll need to make up any shortfall yourself, unless you have GAP insurance.
Can I get another car on finance after a write-off?
It’s possible to get another car on finance after a previous write-off, provided you repaid the outstanding finance on your previous vehicle in full. Failure to make up this outstanding balance on a financed car will impact your credit score and may affect your eligibility for future loans.
What if my car on finance with a provisional licence is written off?
If your financed car with a provisional licence is written off, you need to follow the same protocol for a fully licenced, financed car. Inform your insurer, finance lender and the DVLA, and wait for your insurer to confirm their payout to determine your next steps.
Will a write-off affect my credit score?
A car write-off won’t automatically impact your credit score. However, if you fail to make your monthly repayments or don’t make up the outstanding balance on your finance agreement, your credit score will be negatively affected.
Can I transfer my finance to another car?
You cannot swap a car finance agreement from one vehicle to another. You’ll have to make up any outstanding finance on your existing agreement before taking out a new one. Provided you’ve paid off 50% of the total amount you owe, you may be able to opt for voluntary termination.
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