What happens when a car on finance is written off?
If your car is on finance and gets written off, your insurer usually pays the money straight to your finance company. This goes towards clearing what you still owe. If the payout doesn't cover everything, you'll need to pay the difference yourself. This gap is called a shortfall.
This guide explains each step in plain terms, so you know what to expect.
3 min read
What does "written off" mean?
Your insurer writes off a car when it's too badly damaged to fix, or when repairs would cost too much compared with what it's worth. They then give it one of four categories.
|
Category |
What it means |
Can it go back on the road? |
|
Cat A |
Very badly damaged and must be crushed |
No |
|
Cat B |
The body must be crushed, but some parts can be saved |
No |
|
Cat S |
Damage to the car's structure, such as the frame |
Yes, once properly repaired |
|
Cat N |
Damage that isn't structural, such as bumpers or lights |
Yes, once repaired |
Why does the payout go to your lender?
With most car finance deals, such as hire purchase (HP) and personal contract purchase (PCP), the lender owns the car while your agreement is running. You're the registered keeper, but not the legal owner. That's why the lender has first claim on the insurance money.
Here's what usually happens:
- Your insurer works out the market value of your car just before the accident
- They take off your policy excess
- They pay your lender what you owe, up to the full payout
- If there's any money left over, it comes to you
If you bought your car with a personal loan or a homeowner loan, things work differently. You own the car, so the payout comes to you. You still need to keep paying your loan as normal.
What happens if the payout doesn't cover what you owe?
Cars can lose value quickly, and often faster than you pay off your finance. This means the insurance payout can be less than your settlement figure (the amount needed to clear your agreement). If this happens, you are responsible for paying the shortfall. As an example:
|
Amount |
|
|
Settlement figure |
£12,000 |
|
Market value of the car |
£10,000 |
|
Minus your £250 excess |
£9,750 paid to the lender |
|
Shortfall you need to pay |
£2,250 |
Your lender may ask you to pay the shortfall in one go, or they may agree a payment plan with you. If you're worried, speak to them early.
Do you still need to make your monthly payments?
Yes. Keep paying your monthly instalments until your lender confirms your agreement is settled.
If you stop paying, you could face late payment fees. Missed payments can also show on your credit report, which may make borrowing harder in the future.
How GAP insurance can help
Guaranteed Asset Protection (GAP) insurance covers some or all of the gap between your insurance payout and what you still owe. Some policies go further and cover the gap up to the price you first paid for the car.
Check your paperwork, as you may have bought GAP insurance when you got your car. If you have it, contact your GAP provider as soon as your main insurer confirms the write-off.
What if you disagree with the valuation?
You don't have to accept the first offer. To challenge it:
- Look up similar cars for sale with the same make, model, age and mileage
- Send screenshots or links to your insurer as evidence
If you're still unhappy, make a formal complaint to your insurer. If that doesn't work, you can take your complaint to the Financial Ombudsman Service for free.
Can you keep a Cat S or Cat N car?
You may be able to buy the car back from your insurer and repair it. Your payout will be lower, because the insurer takes off the car's salvage value. As the lender owns the car while your agreement is running, you'll also need their permission first.
What to do next if your financed car is written off
- Report the accident to your insurer
- Tell your lender about the write-off straight away
- Ask your lender for a settlement figure
- Keep making your monthly payments
- Check the insurer's valuation against similar cars for sale
- Contact your GAP provider, if you have one
- Agree how you'll pay any shortfall
Once your agreement is settled, you're free to look for another car. If you're taking out finance again, a lender will look at your credit report, so keeping up your payments during the claim means no missed payments show on it.
If you're finding it hard to pay a shortfall, you can get free, confidential debt advice from the following organisations:
- Citizens Advice — 0800 240 4420
- MoneyHelper — 0800 011 3797
- National Debtline — 0808 808 4000
- StepChange — 0800 138 1111
Get Car Finance up to £50,000
- Check your eligibility without impacting your credit score
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Representative Example: Borrowing £9,290.00 over 5 years with a representative APR of 22.6% an annual interest rate of 20.5% (fixed) and a deposit of £0.00, the amount payable would be £248.98 per month, with a total cost of credit of £5,648.80 and a total amount payable of £14,938.80. Lender fees may apply, this is an example only.
Intelligent Lending Ltd (credit broker) partnered with Ocean Car Finance (credit broker) who works with a wide panel of lenders.
Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
