Car written off and still under finance: what happens to the loan?

Who the insurer pays

It's generally a term of a car loan that any insurance money for the car goes to the lender. If you're insured, the insurer is generally required to pay the registered financial interest (your lender) rather than you directly.

Your insurer and your lender can confirm the amounts, including whether anything is left over for you once the lender is paid.

If the payout is less than you owe

Interest, fees and charges add to what's owed on a car loan, while a comprehensive insurer pays the car's market value (or agreed value) less deductions. So the payout can be less than the amount still owing. That difference, often called the gap, is still owed on the loan.

GAP insurance, if you have it, is designed to cover that gap, up to the policy's limit. The guide on GAP insurance explains how it works.

Why the market value offer matters here

Every dollar of the payout reduces what's left on the loan. That's one reason to check the market value offer against cars for sale in your state before accepting it.

If repayments become hard

If you can't keep up with repayments, you can ask your lender's financial hardship team for a payment arrangement you can afford. The lender has to reasonably consider your request, and if you're not happy with the outcome you can complain to AFCA, which is free.

If the car is sold for less than what's owed, the rest of the loan still has to be paid.

Free help

Financial counselling is free and confidential. You can talk to a financial counsellor through the National Debt Helpline on 1800 007 007.

Does the insurance payout go to me or my lender?

If the car is under finance, the insurer is generally required to pay the lender rather than you. Your insurer and lender can confirm the amounts.

Do I still owe money if my car is written off?

If the payout is less than what you owe on the loan, the difference is still owed, unless GAP insurance or another arrangement covers it.

What if I can't afford the repayments?

You can ask your lender's hardship team for an affordable payment arrangement. The lender has to reasonably consider it, and you can complain to AFCA if you're not happy with the outcome.