What happens if a car is written off under finance?

Roman Danaev

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.

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?

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.

Can I appeal the decision to write off my car?

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.

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

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:

  • An independent evaluation of the car’s value.
  • A written record of the car’s service history.
  • Evidence of the car’s value.
  • Information regarding the vehicle’s mileage and general condition.
  • Testimonies from the seller confirming the vehicle’s real value.

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.

2. Speak to your insurance provider

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.

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

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.

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

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.

2. Buy the car back and repair it

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.

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

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.

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.


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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