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What happens if you damage a car on finance?

Depending on the type of finance, lots of extra damage outside of normal wear and tear can mean extra fees

Car finance

Damaging a finance car

If your finance car gets damaged, what happens next will depend on the type of finance you have and how bad the damage is.

With finance types like Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) – where you might be handing your car back at the end of your contract – you're allowed some fair wear and tear from using the car. Extra damage that isn’t just from normal use, however, might mean you’ll face some extra charges.

An insurance write-off is a phrase used to describe cars that are damaged beyond repair or will cost more than the value of the car to fix. The term used by insurers is Beyond Economical Repair (BER).

If your finance car is written-off, it’ll need to be reported to your lender immediately. It’ll be able to give you your options on what to do next.

What happens if my finance car is written off?

If you’re in an accident and your finance car is damaged beyond repair and written off (this could mean it's declared Beyond Economical Repair) by your insurance company, this means the car can’t be repaired or the cost of fixing it is more than the car is worth.

When you make an insurance claim because your vehicle is damaged, your insurance company will decide whether your vehicle is being written off and then tell you how much it will pay.

You should also contact your lender as soon as possible and let it know what’s happened. It’ll be able to let you know what your options are.

If the car is a write-off, the car remains the property of the finance company until the finance has been settled. The insurance company will usually have a liability to pay the pre-accident market value minus any excesses. Where there is outstanding finance, any payment will be first made toward outstanding finance.

This could cover the exact amount, leave a shortfall, or sometimes mean there is money left over for the customer. Once the payment has been made by the insurance company, as long as there’s no outstanding finance, it would become the property of the insurer.

Your insurer will usually deal with getting the vehicle scrapped for you.

Make sure you tell the DVLA your vehicle has been written off – you can be fined £1,000 if you don’t.

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What is fair wear and tear on a HP or PCP finance car?

When you use a car regularly, it’s expected that some wear and tear will build up. These are small signs of use around the vehicle – check with your finance company to find out what falls into this category and what doesn’t.

If you keep your car at the end of your contract then wear and tear will be less of a concern than if you’re handing it back, as you don’t have to worry about damage charges.

On PCP and PCH contracts, damage to your car that’s more than fair wear and tear could see you having to pay extra at the end of your contract.

Why does fair wear and tear matter?

When you take out PCP finance, you’ll be covering the estimated depreciation of the car on a monthly basis based on what the finance company thinks it will be worth at the end of your contract.

If you return your car in good condition, with only the normal amount of wear and tear, your finance company will be happy that you’ve kept your end of the bargain and maintained the value of your car in line with your payments.

If you return your PCP car with damage that isn’t just from fair usage, your car will be worth less than the finance company was expecting, and it’ll want to get back some of its lost money. This means you’ll have to pay damage charges at the end of your contract.

What happens if I crash my finance car?

Fingers crossed you never have to think about this, but if you do crash your finance car then your insurance company will be there to help you out.

A comprehensive policy will pay for the car to be fixed, or offer a payment that matches the current value of your car if it’s too expensive to repair.

If your car is a write-off, you’ll need to let the finance company know and it’ll talk you through your options.

Who pays for repairs if your finance car is damaged?

If your car does get damaged during your finance deal, you’ll be responsible for the cost of repairs. You could go through your insurance and pay for the repairs that way, or you could pay for them to be done yourself.

If you’re on a PCP or PCH contract, make sure that your contract doesn’t expect you to use a specific garage for any work on the car. Sometimes lenders want the work to be done by the manufacturer.

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