What happens if my car is written off and it's on finance?
If you crash a car on finance and it’s written off, it’s important to know what steps to take. When a car is on finance, it legally belongs to the lender until all payments are completed, which can make the process more complicated than if the car were fully yours. While it’s not a situation anyone wants to find themselves in, understanding how it works could help make it less stressful if it does happen.
To help clear up any confusion, we’ve answered everything you need to know about a car written off on finance, including how insurance payouts are handled.
What does it mean when a car is written off?
A car is considered a write off when an insurance company decides it isn’t worth fixing. This doesn’t always mean the car is completely destroyed, but it does usually mean the cost to fix it outweighs its current value.
In the UK, write-offs are split into four categories based on the severity of the damage:
Category A – The car is completely destroyed and must be scrapped. Nothing can be reused, not even parts.
Category B – The body shell must be scrapped, but some parts can be salvaged for reuse.
Category S – The car has suffered structural damage but could be repaired and made roadworthy again.
Category N – The car has non-structural damage, like cosmetic or electrical issues, and may be repaired safely.
Your insurer should tell you which category your car is in, which will help you understand whether it can come back to you repaired, or whether it’s a total write off.
What happens if my car is written off and still on finance?
If you crash a car on finance or it’s written off in an accident, you need to tell your insurance company and your lender immediately.
Your insurance company will calculate the current market value of the car, and your insurance payout finance amount. Because the car legally belongs to the finance company until all payments are made, the payout is usually sent straight to the lender.
If the insurance payout covers everything you still owe, your finance agreement ends and you don’t need to pay anything else. But if the payout is less than your remaining balance, you’ll unfortunately have to pay the difference to your lender yourself.
This could happen because cars lose value quickly, so what the insurer values your car at might not match what you still owe the lender.
Who gets the insurance payout on a financed car?
When your car is on finance, the finance company technically owns it until all payments are completed. This means the insurance payout finance amount is sent directly to the lender rather than to you.
Only if the payout exceeds your remaining balance would you receive the difference. This is known as being in positive equity.
What happens if my car is written off and it's not my fault?
If your car on finance is written off due to an accident that wasn’t your fault, the at-fault driver’s insurance should cover the payout. In this case, the insurance company of the responsible party will pay your lender to settle your finance agreement.
It’s important to tell both your insurance provider and your lender that the accident wasn’t your fault so that the right procedures are followed and that you aren’t left responsible for paying!
What if there's outstanding finance after the write-off?
Sometimes, the insurance payout amount doesn’t cover the full balance of your finance agreement. If this happens, you have a few options:
● Pay the remaining balance yourself.
● Consider refinancing to pay off the remaining balance.
● Use GAP insurance if you have it.
What is GAP Insurance?
GAP insurance is designed to protect you if your car is written off and your insurance payout doesn’t fully cover the amount you still owe on your car. In short, GAP insurance write-off covers the difference – aka the ‘gap’ – between the payout and your remaining loan so you don't have to pay the shortfall.
It’s not essential to get GAP Insurance if you have a financed car, but some drivers get it for peace of mind to protect them from being out of pocket in this scenario.
Does a write-off affect my credit score?
A car being written off itself doesn’t directly impact your credit score. But, if your insurance payout doesn’t fully cover your finance and you miss payments or default, this could affect your credit history. That’s why it’s important that you keep in contact with your lender and settle any remaining balance to avoid any damage to your credit score after your financed car is written off.
How Car Finance 247 could help
If your car is written off and you need a replacement, Car Finance 247 could help you explore your options for car finance after a write-off. We could also help if you want to get new finance after a write-off, and provide information on whether you could refinance.
Our team will make sure you’re fully informed before taking out a new agreement, helping you get back on the road as quickly as possible with no extra hassle.
The takeaway
If your car’s written off on finance, it’s good to know what to expect. If it does happen at any point of your contract, let your insurer and lender know straight away to help make the process as straightforward as possible. From there, they’ll give you the information you need to understand what’s left to pay and what happens next.
Disclaimer: Car Finance 247 Limited is a broker, not a lender. Finance is subject to status and affordability. We cannot guarantee approval, and we do not offer financial advice. Please read your terms and conditions carefully before entering into any agreement.