5 May 2022
When you purchase a new car, you might make the decision to pay for it with a finance deal. If your car on finance is written off in a car accident within the first couple of years after financing it, you will probably owe the lender more money than the value of your insurance payout.
The situation is slightly different if your car is second-hand. In that case, if your car gets written off, the money you owe will probably be closer to the value of your written off vehicle. After you’ve repaid your loan, you may get some money back, or you may find that you need to pay a bit extra to clear off your debt.
When you write off a vehicle, you should always talk with your finance company to tell them what’s happened rather than cancelling any monthly repayments without explanation.
If you’re in a position where your car has been written off, and you’re wondering what happens next in terms of car finance deals, read on to find out more about the different categories of insurance write-off, as well as what happens when your car on finance is written off.
There are four different categories of insurance write-offs. They are:
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.
If you still owe monthly repayments, you will be expected to continue them until your insurer has officially written off your vehicle. If you just cancel your payments, this will reflect badly on your credit score.
There’s no denying that it’s quite annoying to be stuck paying for a vehicle you cannot use. But the risk to your credit score, if you were to just stop monthly payments, is simply not worth it.
If you disagree with your finance company writing off your car, you can appeal their decision. If you like, you can try to negotiate with them to try and arrange to keep the vehicle, minus the value of any salvage.
When you make the decision to go down this route, you are responsible for dealing with any repair work that needs doing. Your insurance company is highly unlikely to deal with that side of things for you, so you’ll have to make plans for independent repair work.
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.
If you like, you can contact your finance provider to try and dispute your vehicle’s value after it has been written off. If you manage to convince your insurer your car is worth repairing, you might be able to have your car repaired or have some of your finance paid back.
But you shouldn’t expect that convincing them of this to be a walk in the park! You’ll have to negotiate with your insurer and present evidence to back up your arguments. At the very least, you will need:
If you have this information to hand, then you might stand a chance of convincing your insurer. Just make sure that you initiate the process as soon as you can.
Look through the terms and conditions of your finance agreement to see if you have Guaranteed Asset Protection (GAP). This type of insurance offers protection from the difference between the invoice price you originally paid for your car and the reimbursement you receive from your insurance company.
Since GAP is optional, it’s not covered by all insurance policies. Double-check your contract to see whether you signed up for it.
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.
As much as it may seem otherwise, financers and insurers are not enemies! Ultimately, they’re there to help, as they want to build good relationships with their client base.
So, give your insurance company a call. They’ll be more than happy to provide you with a tonne of useful options and suggestions to help you get back out onto the road as quickly as possible.
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.
Your first option is to clear the outstanding balance on your vehicle. Your insurance provider will pay you the amount of money your car was valued at when it was written off. You can put this money towards paying off your balance, and if it doesn’t pay for it in full, you might have the option of making a partial early payment, shortening the remaining time you have on your contract.
If that option doesn’t sound like it’s for you, you could always purchase the car from the finance company and repair it yourself. If you decide to go with this option, you must let your insurer know as quickly as you can.
It may be worth hiring a mechanic to examine your car before you do this. If the repairs are going to cost more than you can afford, it will not be worth it.
Your final option is to put your insurance money towards getting a new vehicle while you continue to pay off the finance for the old one. Most insurance providers allow this.
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.
Whether or not you get GAP insurance is up to you, but it’s at least worth considering if:
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.
This article has discussed what happens when a car is written off under finance and has talked you through how to navigate the situation. 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.
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