What Happens if You Crash a Financed Car?
Car finance has become very common in recent days. People prefer to finance a car rather than paying a lump sum and owning it. There are in fact different types of options available when funding the purchase of a vehicle on finance.
The type of finance you choose will determine whether you own the car at the end of the term or have to return it in good condition to the finance company and get a new one. Your car finance agreement will have many terms and conditions which is important to read through and ask, if unsure, any questions you may have regarding your vehicle's maintenance.
Once you have agreed to the terms and purchased the vehicle, you will become the owner of it until the end of the finance period, and potentially even after that, depending on your finance type. This means that you are solely responsible for anything that happens to the vehicle. So it’s better to carefully choose your car insurance plan.
Types of Insurances and what they entail:
1. Third Party Only:
This is one of the basic insurance plans that is legally accepted in the UK. The TPO insurance will only cover the loss of a third party. You will have to take care of your own damage and settle any pending finances yourself.
2. Third-party Fire and Theft:
Third-party, fire, and theft (TPFT) insurance is another type of third-party insurance that covers the cost of any damage that might occur to your vehicle due to fire or theft.
Comprehensive car insurance is the highest level of coverage available. It covers both third-party liability and your own damage. This type of insurance is typically more expensive than other types of coverage but offers you peace of mind regarding the remaining finance payment.
While comprehensive car insurance may sound good, it's important to keep in mind that the outcome of a crash can be affected by several other factors, such as the severity of the damage, who was at fault, the number of people involved, the cost of the damage and other conditions that may be specific to the insurance policy provider. In cases where the cost of the damage is more than the actual value of the car, the insurance company may only pay you the current market value of the car, which may also be subject to conditions.
In these situations, you will have to face the remaining expenses and pay off the car finance yourself. To avoid these circumstances, it’s worth considering the purchase of Gap insurance, which aims to cover the gap between what you are paid by the insurance company and what you owe to your finance company. Here at Perrys, we offer this type of insurance, so please enquire at the time of purchase from us and our team will be happy to tell you more about it.
By taking these steps, you can attempt to minimise the financial impact of crashing a financed car. We hope our article has helped consider potential future risks and take out a suitable insurance that meets your needs. It’s very important to read all the terms and conditions before purchasing one, as different policy providers will have different clauses. However, if you require any further information, please do not hesitate to contact us.
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