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What happens to your car loan when a car is written off?

A vehicular accident or having damage so severe that your car is written off is probably every driver’s worst nightmare.

So, what do you do when it’s written off? What happens to your car loan and repayments if there is a write-off? Read on to find out.

A vehicle being written off is a lot more common than one would think, and it’s not just accidents on the road that you should be concerned about. This holds particularly true in Australia, which frequently faces adverse weather conditions.

In Sydney, many experienced destructive hailstorms which caused widespread damage to vehicles. The cost to repair the above-damaged vehicle is potentially more expensive than it’s worth and there are many drivers that are still making car loan repayments for vehicles that were subject to such extreme weather.

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What to do when your car is written off

Regardless of if your car has been damaged by an accident or a natural event, if you believe that your car has been severely damaged, you should notify your insurance provider.

The insurance provider will need to determine whether the car is a write-off, also known as a total loss, and which type of write-off it is.

There are two main types of vehicle write-offs:
1. Repairable write-off – when the cost to repair the car is more expensive than the value of it
2. Statutory write-off – when the vehicle is declared to be permanently unsafe to drive, regardless of the repairs completed on it

Drivers can dispute a write-off as it has been declared by your insurance provider. However, according to insurancelaw.org, drivers have a small window of time to raise a dispute, which is usually within seven days.

Further to this, if the car is declared a statutory write-off, it is often quite difficult to resolve the dispute without “significant evidence that the legislative requirements of a non-repairable car have not been met and the insurer was wrong”.

After the declaration of the write-off, the vehicle will be registered in the Written-Off Vehicle Register (WOVR), which assists in preventing damaged vehicle identification, such as number plates and VIN, from being resold at auctions or being mounted onto stolen cars.

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If a car is written off and there is finance still owing on it, the borrower is required to repay this loan, depending on the contract. However, your insurance provider is generally obligated to pay the outstanding amount. If the payout figure exceeds the amount owing on the car loan, the excess will be paid to the borrower.

As often as it is with insurance, there might be a gap between the amount paid by the insurer and the financing owing on the vehicle. The borrower will either pay out of pocket or may have taken out motor equity insurance.

What is motor equity insurance?

Motor equity insurance is insurance designed for situations like this. The insurance provider will pay the car loan lender any shortfall that will be owing from your car insurance provider for the write-off.

While a write-off is never the ideal scenario, it’s best to not let it worsen your financial situation.

If you’re concerned about paying the shortfall of your car loan and do not have motor equity insurance, speak to your car loan lender about a hardship payment plan as it is in their best interest that the loan is paid off.

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