What Happens If My Car Is Written Off When On Finance?

If your car is written off while it’s still under finance, it can be a stressful and confusing situation. Not only will you face losing your vehicle, but you may also be left wondering how to handle the outstanding finance.

In this blog, we’ll guide you through the steps to take if your car is written off, including what happens to your finance agreement, how the insurance payout works, and what options are available to cover any shortfall. We’ll help you to understand the whole process so you can better manage the situation and avoid financial difficulties.

What does written off mean?

When a car is described as ‘written off’, it means an insurance company has determined that the cost to repair the vehicle exceeds its value, or the damage is so severe that it’s no longer safe to drive. Insurers will categorise the write-off based on the extent of the damage, using the following categories:

• Category A: The car is so severely damaged that it must be scrapped entirely, including all parts. It can’t be repaired or returned to the road.
• Category B: The car itself cannot be driven again, but some parts can be salvaged and reused.
• Category S (formerly Category C): The car has structural damage (e.g., to the chassis), but it can be repaired and returned to the road safely.
• Category N (formerly Category D): The car has non-structural damage, such as to the bodywork or electrics, and it can be repaired.

To decide whether a car should be written off, insurers will calculate the cost of repairs, including labour and parts, and compare the total to the vehicle’s pre-accident market value. If repairs are deemed uneconomical or the vehicle is unsafe, the insurer will classify it as a write-off.

What happens to my finance agreement if my car is written off?

If your car is written off while it’s still on finance, the situation can be a little more complex than if you own it outright. Even though the vehicle is no longer roadworthy, you will still be responsible for the outstanding finance on the agreement.

When a car is written off, your insurance company will typically provide a payout based on the car’s current market value, not the amount you owe on your finance agreement. This payment is usually sent directly to your finance provider, as they technically own the vehicle until the finance is fully repaid.

If the insurance payout matches or exceeds the remaining balance on your finance agreement, the agreement is settled, and you won’t owe anything further. However, if the payout is less than the settlement figure – which can often happen due to car depreciation – you will still be liable to cover the shortfall.

Who pays for the outstanding finance after a car is written off?

If your car is written off and the insurance payout doesn’t cover the remaining balance on your finance agreement, you will still be responsible for paying the shortfall. This happens because car finance agreements are based on the amount you borrowed to buy the car, not its current market value, which is what insurers will use to calculate payouts.

In this situation, you have a few options. You can pay the shortfall yourself if you have the money available, simply settling the remaining balance with your car finance provider. If you don’t have the lump sum available, you can often negotiate a payment plan – most companies are willing to set this up to help you manage the outstanding amount.

Another option is to use GAP insurance. This is Guaranteed Asset Protection insurance and will cover the difference between the insurance payout and what you still owe. This can be especially beneficial if you have car finance on a newer car, as these will depreciate quickly. Of course, this will result in another cost that you’ll have to calculate into your budget for managing your car.

What are my next steps after a write-off?

If your car is written off, it’s essential to take a series of steps to ensure you’re managing both the insurance claim and your finance agreement properly. Your next steps will vary depending on whether you have any outstanding debt, the type of insurance you have, and whether you plan to get a replacement car through finance or explore other options.

However, your first step after you have been told that your car is a write-off is to inform your finance provider. You’ll need to tell them the car is a write-off and tell them the insurer will be sending them the payout.

Once you’ve been paid out by your insurance company, review the amount. If the payout covers your outstanding finance balance, the agreement will be settled, and you’ll be free of further obligations. If there’s a shortfall, you will need to arrange payment to cover the difference.

You might opt to start a new finance agreement for a replacement vehicle. You may also wish to negotiate with your finance provider about options like refinancing or adjusting your current agreement. You should talk to your provider about what your options are and what they can offer you.

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