Written off car

Darren0410

So I have a car finance agreement (conditional sale agreement) I have gap insurance although I have no actual clue what this is or had any paperwork.

4 year term, 7 months in. So the car was involved in a complete non fault accident, no quibbles from either insurance and it was written off. The car was bought @ roughly £4k around 7/8 to pay back. They're paying out £3380.

Now what is the situation with a) the finance agreement and b) the gap insurance? I have a cheque on the way for the vehicle. Will the gap insurance do the same or do they liase directly with the finance company? (Moneybarn)

Other thing. I'm now without a car. Since getting the car there have been a few credit report changes due to a break up with a partner which means my chance of passing another credit check for another car is less than zilch and I have no disposable income to purchase one however a car is very important.

What are the consequence s of using the payout money to replace the car? I have literally zero Intention of not paying the finance, I'm comfortable enough to afford it and have a very secure job so that's no problem and it high interest so was taken out as a credit builder anyway. Not sure where to go from here.

[Deleted User]

Is there actually a gap between the payout and your remaining finance? It seems unlikely there will be any need for the gap insurance to pay out.

If your finance is secured on the car, you'll need to settle the balance now. Check your paperwork or give the lender a call.

Darren0410

I didn't think of that, so am I right in thinking the interest would be taken off in effect of I got a settlement figure because it's so early in the agreement? How does gap insurance work? What does it actually cover?

[Deleted User]

It cover the gap between your finance an the amount you get for the car, so always have enough to clear the finance.

After 7 months, depending on the rate and term, your finance is very likely to be below £3800.

Darren0410

Was not sure on the figures so just had a look. Bought the car for £4594. They added £4645.40 interest over 60 months. Paid back at 156.60 per month and made 5 Payments so as it stands paid £783 (apologies if any math is wrong I'm poor at it) so that would mean there is £3811 left but I don't know how all the interest works so that could be wrong. The insurance pay out £3380 mean there would be a very small gap of £431. But the problem is I then have no money left to replace car and a very very unlikely chance of getting credit on a new one.

I'm pretty sure legally I can't do this but what would happen if I used the pay out to simply replace the car? I have no intention of not making the finance payments (I know this means nothing in the eyes of the law) so the finance company would be no worse off and I wouldn't still be able to get to work etc.

fiisch

If the finance was secured against the car, then it would need to be settled. If it's standalone (e.g.: you arrange a loan separately through a third party), then not. Unfortunately, it sounds from your post as if it's the former...

Also, why would you need Gap insurance on a £4k car?

I thought the use of Gap insurance was to cover the shortfall if the outstanding finance was higher than the value of the car in the event of a normal accident. This scenario typically occurs in the first 2-2.5 years of a PCP agreement owing to a new car's depreciation curve, but on a £4k car I can't envisage a point where the owner would be in negative equity (unless they'd financed over 10+ years!).

Possibly a case of mis-selling, or have I missed something?

[Deleted User]

Your calculations are wrong. Your payments have been the covering the interest as well, not just the capital.

Ask for for a settlement figure but on the basis of what you've now put, your balance will still be well above 4k. You'll need to use the gap insurance.

If you choose not to settle the finance, you'll end up defaulting, with the usual consequences, risk of CCJ and so on.

Darren0410

fiisch wrote: »

If the finance was secured against the car, then it would need to be settled. If it's standalone (e.g.: you arrange a loan separately through a third party), then not. Unfortunately, it sounds from your post as if it's the former...

Also, why would you need Gap insurance on a £4k car?

I thought the use of Gap insurance was to cover the shortfall if the outstanding finance was higher than the value of the car in the event of a normal accident. This scenario typically occurs in the first 2-2.5 years of a PCP agreement owing to a new car's depreciation curve, but on a £4k car I can't envisage a point where the owner would be in negative equity (unless they'd financed over 10+ years!).

Possibly a case of mis-selling, or have I missed something?

Not a clue. Unfortunately very wet behind the ears regarding all this and was told it was something I needed. It was £364 over 3 years to cover the full term of the finance.

[Deleted User]

Don't pursue mis selling.

It looks like it may have been the best thing you ever bought. You're going to need it.

DrEskimo

It depends what GAP cover you have. Finance GAP is just one type of GAP cover, that covers any shortfall between your insurance payout and the finance settlement.

The most common form is return to invoice, which will cover the shortfall between the insurance valuation and the invoice price you paid.

If you have return to invoice GAP, then in your case it will pay out the difference between the £4,594 you paid, and the £3,380 your insurance have offered, so a cheque for £1,214. IF you have return to invoice GAP.

What's the exact terms of the finance though, as based on those numbers you might get a bigger pay out for the finance GAP, than the invoice GAP.

Did you have a deposit, or was the car £4,494, and you got a 60month loan at ~38% APR, which works out at 60 payments of £156.60?
Is there a larger final payment at the end (balloon payment)?

If it's just 60 straight payments at £156.6, with no deposit or no large final payment, then your current settlement after 5months is about £4,667, so your finance GAP would be worth £1,287, slightly higher than returning to invoice price, so that is what they would pay out.

Generally it's advised to get the GAP insurance company involved, so that they can negotiate the payout figure from your insurance company. Since they are paying the shortfall, they want to make sure the payout they offer is reasonable to mitigate their costs...have you agreed to the insurance offer already? The GAP provider may refuse to cover the entire amount if you have and they think it's too low....

DrEskimo

Darren0410 wrote: »

Not a clue. Unfortunately very wet behind the ears regarding all this and was told it was something I needed. It was £364 over 3 years to cover the full term of the finance.

That is ridiculously high premium, but depending on the level of cover it may have saved you a good chunk of money, so not all bad...!

You really need to check the details of the GAP you were provided to see what it will cover.

Next time, never buy GAP (or actually anything additional...) from the dealer. I have one of the most comprehensive GAP insurance policies you can get for over a 5yr term on a vehicle worth £15k and it only cost me £248 using a company online. As with most things from a dealer, the mark up is horrendous, and the quality of the product is usually sub-par too...