Has Your Car Been Written Off But You Still Owe Repayments? Here’s What You Can Do.
From late February through early March, rain bombs and severe floods brought devastation across South East Queensland and New South Whales. With thousands of homes flooded, many residents lost countless valuable possessions, including their cars.
If your car has been deemed a statutory write off by your insurance provider (meaning it isn’t considered to be worth repairing) but you still have a loan against it and owe repayments, you might be a bit confused about how to proceed. Understanding how to write off loan repayments in such situations is crucial to managing your finances effectively.
For those who are currently in this situation, we’re here to offer some guidance and reduce your stress during this frustrating time. Read on to learn more about what you can do to get back on the road as soon as possible—even while managing your loan repayment and financial obligations.
What is a statutory write off?
A statutory write-off is a car that is so badly damaged that it can’t be repaired, or the costs to repair it exceed the car’s value. If you're still making a monthly payment on a loan for the vehicle, it’s important to understand your options and whether any loan expenses can be recovered.
Water and Cars Don’t Mix
When you realise how damaging floodwaters can be to cars, it makes sense why your insurance provider may have chosen to write your vehicle off and deem it a total loss—especially if the cost of loan interest and repairs outweighs the car’s value.
Water can ruin various mechanical components of your car, from the transmission to the combustion system, as well as electrical components like the airbag computers.
Floodwaters also tend to clog your car with harmful silt and mud, both of which can cause serious damage to the upholstery and other components, potentially turning the situation into a case of bad debt if you're still responsible for the repayment.
Is Your Car Covered by Insurance?
The answer to this question is a bit complicated (as is the case with most issues related to insurance).
First of all, most car lenders require borrowers to have comprehensive insurance. In theory, this insurance policy would cover the damage caused to the car by a flood and make it easy for you to replace your vehicle.
The problem, though, is that in a lot of cases, the insurance payout isn’t sufficient to cover the cost of the existing car loan and get the driver into a new vehicle. That means you’re still responsible for making the loan payment—regardless of the car’s condition.
When this happens, you may have to take out an additional loan to fund a new car and get back on the road. You might also have to go without a car altogether, at least for a while. Keep in mind that any interest payment on a new loan could impact your next tax return, especially if the vehicle is used for work-related purposes.
A statutory write-off is a car that is is so badly damaged that it can’t be repaired, or the costs to repair it exceed the car’s value.
Do You Still Owe Repayments on Your Car? Here Are Some Options
If your car has been written off by your insurance company, but you still owe repayments on it, you may feel pretty devastated. Fortunately, you’re not completely out of luck.
Depending on your situation, some loan expenses—such as mortgage interest or car-related interest—may be tax deductible if the vehicle was used for business purposes. It’s worth speaking with a tax advisor when preparing your income tax documents to understand what might apply.
The following are some options you may want to consider so you can move forward and start rebuilding your life after a disaster has struck.
1. Pay Off Your Loan
If you find out that your insurance policy does cover the full amount of the car loan, one option is to simply pay off the remaining loan payment and start over again with a new car loan.
You can put as much of the payout as possible toward the loan, then try living without a car while paying off the remaining balance. If you're managing term loans or relying on financial aid, this option may help you stay on top of your monthly payment.
2. Challenge the Write-Off
Do you believe your car can be repaired, despite what your insurance provider thinks? If so, you may be able to challenge the write-off.
To succeed with this approach, you’ll first need to prove that your car can be repaired at an affordable cost. This will require a fair bit of research on your end, including getting quotes from mechanics, salvage yards, etc.
You’ll also need to find evidence that backs up the market value of your car and proves that it is worth repairing—especially if the repair cost is lower than the loan repayment you’re still making.
It takes quite a bit of time and effort to successfully challenge a write-off. However, if you truly believe that your car can be salvaged, it may be worth it to put in that work to save your ride.
3. Apply for a Financial Hardship Variation
There is also the chance that your lender may be sympathetic to your situation, especially as you’re dealing with a natural disaster like the recent floods. In such cases, exploring financial aid options or discussing a hardship variation can provide relief.
If you find yourself without a car but still having to make a loan repayment, consider reaching out to your lender and applying for a financial hardship variation. If approved, you may be allowed to reduce your payment amount while navigating a tough financial situation as a borrower.
This guide from Legal Aid Queensland provides more insight into the specific requirements you’ll need to meet to qualify. It also includes helpful resources for those needing more guidance on their rights and loan expenses.
Refinancing involves replacing your current car loan with a new one—ideally with a lower interest payment—to help ease your financial load.
4. Refinance Your Loan
Another option is to refinance your car loan.
Refinancing involves replacing your current car loan with a new one that offers a better interest rate. This can lower your loan payments, reduce your overall loan expenses, and help you take advantage of more competitive interest payment terms.
Here at Naked Loans, we’re all about getting you back on the road sooner. When you refinance through us, you can move forward and purchase a new vehicle much faster than with other approaches—especially if you're still managing a previous loan repayment or bad debt.
Our team of experienced car loan brokers compares options from over 30 lenders to help you find a loan that suits your needs, including those with flexible monthly payment plans and low loan interest rates (some as low as 3.7%). It’s free to apply and won’t affect your credit score.
Understanding Loan Repayment and Tax Implications
Navigating the aftermath of a vehicle write-off involves more than just addressing the immediate loss. It's essential to understand the broader financial implications, including loan repayment obligations and potential tax considerations.
If you're continuing to make loan repayments on a written-off vehicle, it's important to note that certain loan expenses, such as interest payments, may have tax implications. For instance, under specific circumstances, interest payments on loans can be tax deductible, potentially reducing your income tax liability.
However, the deductibility often depends on how the loan funds were used and the nature of the loan.
Additionally, if the loan was used for business purposes, the interest component of your monthly payment might be considered a deductible expense. It's advisable to consult with a tax professional to understand how these factors apply to your situation and to ensure you're maximizing any available tax benefits.
Final Thoughts
If you’ve been affected by the recent floods, you have our deepest sympathies. We know how challenging it can be to bounce back after a natural disaster like this, and it’s even harder when you don’t have access to a reliable vehicle and are struggling with bills piling up around you.
If you’re ready to put this mess behind you and get back on the road as quickly as you can, Naked Loans are here to help.
Reach out to us today and get help refinancing your loan in under 10 minutes.