What happens if I crash a car on finance?
Damaging a financed car is a situation no one wants to be in. But if you do find yourself in this scenario, it’s important to know what to do next. Whether it’s minor damage or a serious accident that leaves the car beyond repair, if you crash your financed car, there are steps to follow.
This guide covers what to do if you damage the car, if the car is written off, and how different finance agreements affect the process.
What happens if you damage a car on finance?
If the car is damaged but still driveable, your insurance might pay for repairs. However, you will likely need to cover the excess if the damage was your fault.
Remember, if you only have third-party insurance, repairs to your car may not be covered, and you could be responsible for all costs. If you have comprehensive insurance, repairs will more likely be covered. For peace of mind and to try and avoid hefty fees, it’s worth exploring your options to understand which is the right insurance for you.
It's important to note that you still need to make your monthly payments even if your car is in the garage for repairs. Your finance agreement doesn’t change, regardless of whether the car is driveable. If you need a car while yours is in for repairs, check if your insurance policy includes a courtesy car.
Will I incur wear and tear charges?
If you’re on a PCP or PCH agreement, damage may lead to extra wear and tear charges at the end of your contract. This is because you're essentially loaning the car rather than owning it outright, so it needs to be returned in good condition.
Fair wear and tear means minor marks from normal use, such as small scratches or tyre wear. Damage beyond normal wear and tear, like dents and serious scratches from a car crash, may result in extra charges at the end of your agreement.
Wear and tear charges do not apply to HP car finance, because you own the car at the end of the loan term.
To avoid these wear and tear costs:
Repair any significant damage after a crash before returning it
Check the finance provider’s wear and tear guidelines before handing the car back
Can I return a damaged car instead of repairing it?
If your financed car is damaged, returning it instead of repairing it depends on your finance agreement:
Hire Purchase (HP): Since you will own the car at the end of your agreement, you’re responsible for repairs. You can’t return the car early without settling the outstanding balance.
Personal Contract Purchase (PCP): You can return the car at the end of the agreement. However, if there's damage beyond normal wear and tear, you might face extra charges. If the car is severely damaged or written off before the agreement ends, you’ll need to settle the finance first.
Personal Contract Hire (PCH): Since this is a lease, you must return the car in good condition. The leasing company will charge for damage beyond fair wear and tear, and early termination fees may apply if you want to end the contract early.
If your car is damaged, check your finance provider’s policy and weigh up the costs of repairs versus potential penalties for returning it as is.
What happens if you write-off a car on finance?
If your insurance company thinks the car on finance is beyond repair, or not worth the money it would cost to fix it, it will be classified as a write-off. You must report this immediately to your lender. It’s important to read all documentation from your insurance provider and lender to understand what’s required.
If you write off a financed car, your insurance provider will assess its market value and following investigation may issue a payout. But remember, you’ll still need to repay any outstanding balance on your loan. If the insurance payout doesn’t cover the outstanding balance, you must pay the difference, unless you have GAP insurance. You may also face early settlement fees, depending on the terms of your finance agreement.
If you fail to repay the shortfall, this may negatively impact your credit rating, and your lender could take legal action to recover the outstanding amount.
What is GAP insurance?
One way to cover your back if you crash a financed vehicle is to get Guaranteed Asset Protection (GAP) insurance. If your car is written off and the insurance payout is less than the remaining finance balance, GAP insurance helps cover the difference. It can be worth it for the financial protection and peace of mind. In the event that your car is written off, it could mean you're not left with a hefty outstanding balance to pay.
While GAP insurance can help cover the difference between the insurance payout and the remaining finance balance, it's important to consider any interest or fees related to the finance agreement when calculating the total amount outstanding.
What to do if your financed car is written off
If your car is written off, follow these steps:
Contact your lender – Report the write-off and provide any required details. Since the car is still under finance, you must notify the lender.
Ask about charges – Some lenders may apply early settlement fees or other charges if you end the agreement due to a write-off.
Wait for the insurance payout – Your insurer will assess the car’s value and may issue a settlement.
Check the shortfall – If the insurance payout doesn’t cover your remaining finance, this is called the shortfall. You’ll need to pay the difference unless you have GAP insurance.
The takeaway
If you’ve crashed or damaged your finance car, try not to panic. The best thing to do is inform your finance provider and insurance company as soon as possible, and take it from there.
If you’re looking for a replacement car after an accident, at Car Finance 247, we could help! Get a free no-obligation quote, or get in touch today.
If you're unsure about your options or need help understanding the financial implications of your agreement, we recommend seeking advice from a financial professional. This guide provides general information and is not a substitute for professional financial advice. Please consult your finance provider and a financial advisor for guidance specific to your situation.