What Happens If You Crash a Financed Car With Insurance?
Crashing a car is stressful enough, but when that car is still on finance, things can get even more complicated. If you’re in this situation, don’t panic. Your car insurance provider should help, but it’s important to understand what happens next and how it might affect your finance agreement.
Key points
Check What Kind of Insurance You Have
If you’ve got fully comprehensive insurance, you’re covered for damage to your own vehicle, even if the crash was your fault. This is the type of cover most lenders require when you finance a car. If you only have third-party cover, you won’t be covered for repairs to your own car, which could leave you in a difficult position if it’s badly damaged or written off.
What Happens After the Crash?
- Make a Claim: Report the accident to your insurer as soon as possible. They’ll assess the damage and decide whether to repair the car or declare it a write-off.
- If the Car Is Repairable: Your insurer will pay for the repairs (minus any excess), and you’ll continue making your finance payments as normal.
- If the Car Is Written Off: Your insurer will pay out the car’s current market value. This payment usually goes directly to the finance company to settle as much of the outstanding balance as possible.
- If the Payout Doesn’t Cover What You Owe: Here’s where it can get tricky: if the payout is less than what you still owe on the finance, you’ll have to pay the difference out of your own pocket.
How GAP Insurance Can Help
GAP (Guaranteed Asset Protection) insurance is designed to cover the difference between your car’s market value and the amount left on your finance agreement. It’s optional, but can be a financial lifesaver if your car is written off early in the finance term when depreciation is steep.
If you don’t have GAP insurance, it’s worth checking your finance agreement to see if it includes any cover for shortfalls.
Will crashing a financed car affect my credit score?
Not directly. But if you don’t repay any remaining balance owed after a write-off, it could negatively impact your credit.
Can I keep the car if it’s written off?
Sometimes, depending on the write-off category and if your finance company agrees. You’d usually need to buy the car back from the insurer.
What if the accident wasn’t my fault?
Your insurer may recover costs from the other party’s insurer, and your no-claims bonus may be protected (if you’ve added that to your policy).
In Summary
- Fully comprehensive insurance covers damage to financed cars.
- If your car is written off, the payout goes to the finance company.
- You may still owe money if the payout doesn’t clear the full finance.
- GAP insurance can cover the shortfall.
- Always compare car insurance quotes and consider GAP cover when financing a car.
Crashing a financed car isn’t ideal, but your insurance is there to help you recover, and knowing how the process works makes a tough situation a bit easier to manage.
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