What happens if a car is written-off under finance?

If you crash or damage a car on finance, what happens next depends on the severity of the damage and your type of finance agreement. Generally, you are the registered keeper, so you’re responsible for insuring and maintaining the car. Most repairs will be your responsibility, though your car insurance may cover the costs, depending on the accident's details.

If the car is written off, it remains the property of the finance company and you must still repay the remaining balance to your lender, even if the insurance payout doesn’t fully cover it. For second-hand vehicles, the difference might be smaller, but you could still owe more than the insurance covers. Always inform your finance company immediately if your car is written off, and continue making payments until the situation is resolved. Avoid cancelling payments without explanation to prevent further financial complications.

What are the four categories of insurance write-off?

There are four different categories of insurance write-offs. They are:

• Category A, for cars that cannot be repaired and can only be scrapped without any parts being salvaged.
• Category B, for cars that cannot be repaired but that have some parts that may be salvaged to recycle or sell.
• Category S (previously category C), for cars that have sustained damage to the chassis but that the owner has made the decision not to fix, usually because to do so would not be cost-effective.
• Category N (previously category D), for cars that have sustained damage to parts other than the chassis but the owner still does not intend to fix, most often because of issues relating to steering or suspension.

Can you finance a category C or category D car?

Most insurers do not offer finance for category C or category D vehicles. However, there are some exceptions to this rule, so you should always double-check with your insurance provider to see if this is something they offer.

Do I still need to make monthly finance payments if my car is written off?

Yes, you still need to make your monthly finance payments even if your car is written off. It’s understandable to feel frustrated paying for a car you can no longer use, but stopping payments could damage your credit score. It’s important to keep up with the payments until your insurer finalises the write-off. By doing this, you protect your credit and make sure the situation is handled smoothly. Working closely with your insurer and finance provider will help you resolve things as quickly as possible.

What should I do if my financed car is a write-off?

So, what should you do if your financed vehicle gets written off? The answer is not to just cancel your monthly payments with your finance provider. Instead, there is an important list of steps you should follow.

1. Contact your finance provider

Reach out to your finance provider to discuss your vehicle’s value after it’s been written off. You may be able to dispute the valuation and negotiate for repairs or a partial refund on your finance.

Be prepared for a challenging process. You’ll need to present strong evidence to support your case, including:

• An independent evaluation of the car’s value
• A complete service history
• Proof of the car’s market value
• Details of the vehicle’s mileage and condition
• Testimonies from the seller confirming its real value

Gather this information and contact your insurer as soon as possible to maximise your chances of success.

2. Speak to your insurance provider

Check your finance agreement to see if you have Guaranteed Asset Protection (GAP) insurance. GAP covers the difference between the original invoice price of your car and the reimbursement from your insurance company.

GAP insurance is optional and not included in all policies, so double-check your contract to confirm if you have this coverage.

3. Update the DVLA

If your insurer doesn’t agree with your dispute, you can always further your case to the Financial Ombudsman Service (FOS). It’s their job to handle disagreements between companies and clients, and they know all the ins and outs of car finance. Hopefully, they will be able to offer you some assistance. That said, you shouldn’t take this step unless you are certain the write-off value offered by your insurers is definitely too low.

4. Talk things through with your financer

Remember, your finance provider and insurer are not at odds. Both want to help you and maintain a good relationship with you as a client. Contact your finance provider to discuss your situation. They can offer valuable options and suggestions to help you get back on the road as quickly as possible.

What are my options if my financed car is a write-off?

If your financed car is a write-off, what options do you have available to you? This section will talk you through some potential paths you can take.

1. Clear the outstanding balance

One option is to clear the remaining balance on your vehicle. Your insurance provider will pay you the car’s value at the time of the write-off. You can use this money to pay off your balance. If the payout doesn’t cover the full amount, you might be able to make a partial early payment, which could shorten the remaining term of your finance agreement.

2. Buy the car back and repair it

If clearing the outstanding balance isn't the right choice for you, another option is to buy the car back from the finance company and take care of the repairs yourself. To do this, you’ll need to inform your insurer as soon as possible. It’s a good idea to have a mechanic inspect the car first to assess the repair costs. If the repairs are too expensive, it might not be worth pursuing this option.

3. Use insurance to buy a new car and keep paying your finance

You can use the insurance payout to buy a new vehicle while continuing to make payments on your existing finance. Most insurance providers allow this option, giving you the flexibility to replace your car without disrupting your current finance agreement. This approach lets you get back on the road quickly while maintaining your financial commitments.

Can I appeal the decision to write off my car?

Yes, you can appeal if you disagree with your finance company's decision to write off your car. You can negotiate to keep the vehicle, minus the salvage value. However, if you choose this route, you’ll be responsible for all necessary repairs. Your insurance company typically won’t handle these repairs, so you’ll need to arrange for independent work.

What is GAP insurance?

GAP Insurance protects you from the gap between your original invoice cost—or the remaining balance on your car finance plan—and your insurer’s payout so you can avoid negative equity. This is the term for when you need to pay back a larger amount of cash to your financing company than the vehicle is worth.

Should I get GAP insurance?

Whether or not you get GAP insurance is up to you, but it’s at least worth considering if:

• The type of car you own is one that depreciates in value rapidly.
• You don’t have the money to replace your vehicle if it gets written off.
• You’re concerned the payout from your insurance company won’t be enough to settle the remaining balance on your finance deal.

If you have enough money to replace the vehicle or pay off its remaining balance, or if you already have full protection from negative equity, then it may not be necessary to get GAP insurance.

Summary

If you end up in this position and need further support on how to deal with cars written off under vehicle finance, don’t hesitate to reach out to Carplus today.