What happens to my auto loan if my car is written off?


It’s every driver’s worst nightmare; have an accident or suffer such serious damage that your car is written off. But if you’re still paying off a car loan, what happens to your loan if the vehicle is written off?

A written-off car is a more common occurrence than you might expect, and it’s not just traffic accidents you need to worry about. This is especially true in countries like Australia which frequently experience adverse weather events.

In Sydney, destructive events such as hailstorms can cause widespread damage to cars, with the cost of repairing said vehicle potentially being greater than the value of the vehicle. And as recently as 2018, many drivers still making car loan repayments faced this exact scenario.

What to do when a car is written off

Whether it is an accident or a natural event, if you believe that your car has been seriously damaged, you should inform your insurer.

The insurance provider will then determine if the car is a loss (also known as a “total loss”) and, if so, what type of loss it is. There are two main types of vehicle radiation:

  1. Repairable depreciation – when the cost of repairing the vehicle is greater than the value of the vehicle.
  2. Legal cancellation – when the vehicle is declared unfit for driving at all times, regardless of the repair work.

Drivers can dispute a write-off as declared by your insurer. But according to InsuranceLaw.org, drivers have a small window of time to raise a dispute (generally less than 7 days). In addition, if it is a legal deregistration, it is often “very difficult” to resolve the dispute without “significant proof that the legislative requirements of a non-repairable car have not been met and that the ‘insurer was wrong’.

The vehicle will then be registered at Register of canceled vehicles (WOVR), which helps prevent the identification of damaged vehicles (license plates, VINs) from being resold at auction or put on stolen cars

If a car is written off and there is still financing owed, the borrower will still have to repay that loan – according to the contract. However, your insurer is usually required to pay this unpaid amount. If the payment is greater than the amount owed on the car loan, the deductible will be paid to the borrower.

But as is often the case in insurance, there can be a gap between the amount paid by the insurer and the financing owed on the vehicle. The borrower will pay for this out of pocket or may have had the foresight to purchase auto insurance.

Auto insurance is insurance designed for this scenario. The auto insurance provider will pay the auto loan lender any deficit owed by your auto insurance provider for the write-off.

While a write-off is never the ideal scenario, it’s best not to let it get worse for your finances. If you’re worried about paying your car loan deficit and don’t have car insurance, talk to your car lender about a hardship payment plan. They should be able to help you because it is in their best interest that the loan be repaid.

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