Crashing a car is a stressful and overwhelming experience for any driver, but it can be particularly daunting if the car is financed. When you’re still making payments on a vehicle, there are additional complexities to consider, such as financial obligations, insurance claims, and dealing with the finance company.
This guide aims to provide a comprehensive understanding of what happens when you crash a financed car, offering detailed information on the steps you should take, the financial implications, and practical advice to help you navigate this situation smoothly.
Immediate actions to take after a crash
Regardless of your finance agreement, there are some immediate actions you should take if you crash your car:
- Ensure Safety: Check for injuries and move to a safe location if possible. Prioritise the safety of all involved.
- Contact Emergency Services: If there are injuries or significant damage, call the police and ambulance services. They will provide assistance and create a report of the incident.
- Exchange Details: Swap contact and insurance information with the other parties involved in the accident.
- Document the Scene: Take photos of the damage, the scene, and any relevant road signs or signals. This documentation can be crucial for insurance claims.
- Notify Your Insurance Company: Report the accident to your insurer as soon as possible. Provide them with all the necessary details and documentation.
Reporting the accident to your finance company
After notifying your insurance company, you should also inform your finance company about the accident. They have a vested interest in the car and need to be aware of any damage. The finance company may have specific procedures or requirements for handling repairs or claims, so it’s crucial to keep them informed and follow their guidance.
Making an insurance claim
When you crash a financed car, your insurance policy will play a central role in covering the costs of repairs or replacement. Here’s how the process generally works:
- Assessment and Repairs: An adjuster from your insurance company will assess the damage to the car. If the car is repairable, they’ll authorise the necessary repairs, often at an approved garage. You may need to pay an excess fee, depending on your policy.
- Write-Off: If the car is deemed a total loss (write-off), the insurance company will calculate the car’s market value and pay out accordingly. This is where the type of your insurance (comprehensive vs third-party) and any gap insurance comes into play.
Understanding GAP insurance
Guaranteed Asset Protection (GAP) insurance can be a lifesaver if your financed car is written off. GAP insurance covers the difference between your car’s current market value (which the insurance company pays) and the amount you still owe on your finance agreement. Without GAP insurance, you could end up paying out of pocket for a car you no longer have. There are different types of GAP insurance, including:
- Return to Invoice (RTI): Covers the difference between the insurance payout and the original invoice price of the car.
- Vehicle Replacement Insurance (VRI): Covers the cost of replacing the car with a new one of the same make and model.
- Finance GAP Insurance: Covers the difference between the insurance payout and the amount owed on your finance agreement.
What happens to the finance agreement?
If the car is repairable…
- Hire Purchase (HP): Continue making your monthly payments as agreed. The finance company may require confirmation that the repairs are completed to a satisfactory standard. Ensure the repairs maintain the car’s value and functionality.
- Personal Contract Purchase (PCP): Similar to HP, continue making payments. Ensure the repairs do not affect the car’s value if you plan to return or part-exchange it at the end of the term. You may also need to get the car inspected to verify that repairs meet the required standards.
- Leasing: The leasing company will usually manage repairs. You may need to pay for the repairs if they exceed the insurance payout. Keep in mind that excessive damage or poor-quality repairs can lead to additional charges when you return the car at the end of the lease.
If the car is written off…
- Hire Purchase (HP): The insurance payout goes directly to the finance company. If it doesn’t cover the remaining balance, you’re responsible for paying the difference unless you have GAP insurance. Once the balance is settled, your finance agreement will be terminated.
- Personal Contract Purchase (PCP): The process is similar to HP. The payout goes to the finance company, and you cover any shortfall. After settling the balance, the agreement ends. If you were planning to keep the car at the end of the term, you’ll need to start a new finance agreement for a replacement vehicle.
- Leasing: The leasing company will receive the payout. Any shortfall is typically your responsibility, which GAP insurance can cover if you have it. Once the payout is processed, your lease agreement will end, and you’ll need to arrange a new lease if you want another vehicle.
Financial responsibilities after a crash
Crashing a financed car can have financial implications beyond immediate repairs or replacements. Here’s what you need to consider:
- Remaining Payments: You’re still responsible for making payments on your finance agreement, even if the car is off the road or written off. Missing payments can negatively impact your credit score and result in penalties or additional fees.
- Excess Fees: You’ll likely need to pay the insurance excess as part of the claims process. This fee is specified in your insurance policy and is usually required before repairs can begin.
- Depreciation: A repaired car might be worth less than before the crash, affecting future resale or part-exchange value. Consider how this depreciation impacts your plans for the vehicle at the end of your finance term.
- Insurance Premiums: Your insurance premiums may increase after a claim, especially if you were at fault. Be prepared for higher costs when renewing your policy.
Practical advice and tips
- Review Your Insurance: Ensure you have comprehensive cover and consider adding GAP insurance to protect yourself from significant financial loss. Regularly review your policy to make sure it meets your needs.
- Understand Your Finance Agreement: Know the terms and conditions, including what happens in the event of a crash. Familiarise yourself with any clauses related to accidents, repairs, and write-offs.
- Keep in Touch with Your Finance Company: Maintain open communication to ensure you’re following the correct procedures. Inform them immediately after an accident and keep them updated throughout the claims process.
- Drive Safely: Prevention is the best strategy. Drive carefully and follow traffic laws to reduce the risk of accidents. Regularly service your car to ensure it’s in good condition.
Crashing a financed car adds an extra layer of complexity to an already stressful situation. By understanding your finance agreement, knowing the insurance process, and communicating effectively with all parties involved, you can navigate this challenge with confidence and ensure you’re taking the right steps to protect your financial interests.
Regularly review your insurance and finance agreements, drive safely, and keep informed to minimise the impact of such incidents on your life.
Frequently asked questions
Will my insurance premium go up after a crash?
Yes, it’s likely your insurance premium will increase after a claim, especially if you were at fault. This increase reflects the higher risk you pose to the insurer.
Can I switch finance companies after a crash?
Switching finance companies mid-term is generally difficult and not recommended. You’ll need to continue with your current agreement until it’s resolved. After settling any outstanding balances, you can explore new finance options for a replacement vehicle.
What if I can’t afford the repair costs?
If you’re struggling with repair costs, talk to your finance company and insurance provider. They may offer solutions or assistance, such as spreading the cost over several months. Additionally, check if your insurance policy covers a courtesy car while yours is being repaired.
Do I have to use an approved garage for repairs?
Most insurance companies prefer or require you to use approved garages. Check with your insurer for specific requirements. Using an approved garage ensures the repairs meet the insurer’s standards and are covered by your policy.
What happens if the other driver is uninsured?
If the other driver is uninsured, your comprehensive insurance should still cover you. You may also be able to claim through the Motor Insurers’ Bureau (MIB) for compensation. The MIB is a UK organisation that helps victims of accidents involving uninsured or hit-and-run drivers.
🚗 Related guide: What happens if you crash a leased van?
