Owning a car on finance is a practical way to drive the vehicle you want without paying the full cost upfront. However, it comes with its own set of responsibilities and potential concerns. One such concern is what happens if your car gets stolen while you’re still paying for it. In this comprehensive guide, we will explore the steps you need to take if your financed car is stolen, the implications for your finance agreement, and how you can protect yourself from such an unfortunate event.
Theft will not affect your credit score
The first thing to note is that your credit score won’t be affected if you’re the victim of a theft. That said, you might still be on the hook for any missed payments as a result of the theft. Your lender should take steps to recover the car, but ultimately if it can’t be found, you may still need to make payments until the loan is paid off in full.
The good news is that most lenders will allow you to cancel your insurance policy after a vehicle has been stolen and declared a total loss by your insurer. This could provide some relief from additional costs while you try to figure out how to handle any remaining loan balance.
Immediate steps to take if your car is stolen
- Report to the Police: As soon as you discover your car has been stolen, contact the police to report the theft. You will be given a crime reference number, which is essential for any insurance claims. Provide the police with all relevant details about the car, including its registration number, make, model, and any distinguishing features.
- Contact Your Insurance Company: Inform your insurer about the theft as soon as possible. They will guide you through the claims process and may arrange for a replacement vehicle if your policy covers it. Be prepared to provide your insurance policy number and the crime reference number.
- Notify Your Finance Provider: Contact your finance provider to inform them of the situation. They need to know that the car is no longer in your possession and that an insurance claim is underway. Provide them with the crime reference number and details of your insurance claim.
Insurance claims process
When your car is stolen, your comprehensive car insurance should cover the loss. Here are the typical steps involved:
- Submit a Claim: Provide your insurer with the crime reference number and any other required documentation, such as proof of purchase, finance agreement details, and evidence of the car’s condition before the theft.
- Assessment: The insurer will assess the claim and may investigate the circumstances of the theft. This may involve reviewing CCTV footage if available, interviewing witnesses, and verifying your account of events.
- Settlement: If the claim is approved, the insurer will offer a settlement based on the car’s market value at the time of theft, minus any excess you agreed to when you took out the policy. The market value is determined by the car’s age, mileage, condition, and similar car sales in your area.
Implications for your finance agreement
The outcome of your insurance claim will directly affect your finance agreement:
Hire Purchase (HP) and Personal Contract Purchase (PCP)
- Insurance Payout: If the insurance payout covers the remaining finance balance, you can settle the finance agreement.
- Negative Equity: If the payout is less than the outstanding balance, you will be responsible for the shortfall. This is known as “negative equity.” In such cases, you will need to pay the difference to the finance company.
- Gap Insurance: Some finance agreements include “gap insurance,” which covers the difference between the car’s market value and the remaining finance balance. If you have gap insurance, it will cover the shortfall, ensuring you are not out of pocket.
Personal Loan
Since you own the car outright, the insurance payout will go to you. However, you still need to continue repaying the loan. The loan is unsecured against the car, so your obligation to repay remains regardless of the car’s status.
Handling negative equity
Negative equity occurs when the insurance payout doesn’t fully cover the remaining finance balance. Here are a few ways to handle it:
- Gap Insurance: If you have gap insurance, it will cover the shortfall between the insurance payout and the remaining finance balance. This is a valuable addition to any finance agreement as it protects you from financial loss in the event of theft or total loss.
- Negotiation with Finance Provider: Some finance providers may allow you to restructure the remaining debt. This could involve extending the repayment period or adjusting the monthly payments to make them more manageable.
- Personal Savings: You might need to use personal savings or take out a small loan to cover the shortfall. Consider discussing options with your bank or financial advisor to find the best solution for your situation.
Preventive measures to protect your car
- Comprehensive Insurance: Ensure your car is covered by a comprehensive insurance policy that includes theft protection.
- Gap Insurance: Consider gap insurance, especially if you have a high finance balance compared to the car’s value. It provides an additional layer of protection against financial loss.
- Security Devices: Install additional security devices like steering wheel locks, immobilisers, or tracking systems. These can deter thieves and increase the chances of recovering your vehicle if stolen.
- Safe Parking: Park in well-lit, secure areas and use secure car parks whenever possible. Avoid leaving valuables in plain sight, and always lock your car and activate any security features when leaving it unattended.
Frequently asked questions
What if I can’t afford to pay the shortfall in negative equity?
If you cannot afford the shortfall, contact your finance provider immediately. They might offer options such as restructuring the debt or extending the repayment period to make it more manageable. Some providers may also offer payment holidays or temporary reduced payments.
Will my insurance premium increase after a theft claim?
Yes, it’s likely that your insurance premium will increase after a claim for theft. Insurance companies adjust premiums based on the risk of future claims. It’s advisable to shop around for new insurance quotes at renewal time to ensure you get the best deal.
Can I cancel my finance agreement after my car is stolen?
Cancelling a finance agreement is not straightforward and often involves settling the remaining balance. It’s best to discuss your options with your finance provider. In some cases, early termination fees may apply.
What happens if my car is recovered after the insurance payout?
If your car is recovered after the payout, you must inform your insurer. They might allow you to keep the car and adjust the payout, or they might take possession of the car, depending on the terms of the payout. The insurer will guide you through the necessary steps based on the recovery condition of the vehicle.
What additional insurance options should I consider for better protection?
In addition to comprehensive and gap insurance, you might consider add-ons like key replacement cover, personal belongings cover, and legal protection cover. These options can provide extra peace of mind and financial protection in various scenarios.
By taking these extra steps, you can ensure that your car is protected from theft while on finance. Remember to stay vigilant and follow these tips to help reduce your risk of becoming a victim of auto theft.