What Happens if You Get Into an Accident With a Financed Car

November 20, 2023

For those who don’t want to splash out on a substantial car payment upfront, car financing can be a great way to spread the cost of your investment while still having the convenience of your own vehicle at their disposal. Just pros and no cons, right?

But what happens if you're involved in an accident with a car that's still under finance? While your financial lender will usually claim ownership of the car until financial arrangements are made, there are a number of things to bear in mind if you’re in an accident with a financed car. Let’s take a look.

What is Car Financing?

First things first, let's talk about what car financing means. When you finance a car, you're essentially borrowing money to purchase the vehicle, and you agree to pay back that amount over a period of time, typically with interest. The car serves as collateral for the loan, which means the financing institution has a vested interest in the vehicle. In short, it’s a bit like a mortgage on your home, but for vehicles.

Car Insurance and Financing

In the UK, if you have a financed car, having comprehensive car insurance isn't just a wise choice - it's often a requirement from your financial lender. This insurance covers damages to your vehicle in case of an accident, theft, or other damages, which is imperative given that the car isn't fully yours yet.

What to Do If I’m In An Accident In a Financed Car?

If you're involved in an accident while driving a financed car, your immediate steps don't differ much from any standard procedure; ensure everyone's safety, call emergency services if needed, and report the accident to the police, especially if it's a serious one. From there, you can do the following:

Document the Accident

Similar to a road accident with a car that belongs to you, you’ll need to document everything relating to the accident; this means taking photos of the scene, jotting down details, and exchanging information with any other parties involved. Your insurance company and financing institution will need these details when deliberating who the at-fault party is.

Investigate the Damage

Once everyone's safe and you've documented the scene, it's time to assess the damage to your car; check for scratches, dents, malfunction and more, and take a picture of any - even minor - detail that might bolster your case during the claims process.

Filing an Insurance Claim

Once all formalities are taken care of, you’ll need to move onto filing your insurance claim, and it’s important that you contact your insurance provider as soon as possible with all the details and documentation of the accident. This is especially true if the accident wasn't your fault, as you’re going to need to claim your non-fault accident compensation to cover any repairs or damage on the vehicle.

the words loan agreement printed on a paper

What Happens To My Finance Agreement?

Unfortunately, your financial lender will need to be informed about the accident, especially if the car is a write-off or if repairs are significant. Generally, the car will remain the property of the lender until the financial aspect of the claims process is settled, but policies may vary from lender to lender, so make sure you’re familiar with your particular lender’s terms when it comes to insurance and road accidents.

What About Outstanding Loan Balances?

Now, here’s the important part: what happens to your outstanding loan balance if you crash a financed car? Generally, if the insurance payout doesn’t cover the remaining balance on your car loan (known as being “upside down” on your loan), you might still owe money to your financing institution. This situation is where Guaranteed Asset Protection (GAP) insurance can be a lifesaver; this will cover the difference between what insurance pays and what you owe.


Will my car loan be paid off if my financed car is totaled?

If your car is totaled, your insurance company will typically pay out the current market value of the vehicle, provided that you weren’t at fault. If this amount doesn't cover the remaining balance on your loan, you might still owe the difference unless you have GAP insurance, which covers this shortfall.

What happens if the accident wasn't my fault?

If the accident wasn't your fault, you should still inform your insurance company and your financing institution. You may also pursue a non-fault accident compensation claim to recover expenses without affecting your insurance premiums.

Is it necessary to inform my financing institution of minor damages?

Yes, it's always a good idea to inform your lender of any damages, no matter how minor. They have a financial interest in the car and should be kept in the loop regarding its condition - even if the damages don’t appear that significant.