Every question, every answer, every source

I’m sorry you’re dealing with this. Having your car written off is stressful enough, and finding out that the insurance payout won’t clear your car loan can make things even harder.

The good news is that, in New Zealand, having your car written off doesn't mean you automatically lose everything you've paid towards it. However, if the insurance payout is less than the amount you owe, you will generally still be responsible for the shortfall unless you have additional cover or another arrangement applies.

Here's what usually happens and what you can do next.

1. What happens when the insurance payout doesn't cover your loan?

Let's say your situation looks like this:

Item	Example amount
Remaining car loan	$18,000
Insurance payout	$13,000
Shortfall you still owe	$5,000

Usually, the process works like this:

1. Your insurer assesses the damage and declares the car a total loss (a write-off).
2. Your insurer calculates the settlement under your policy.
3. If your car loan is secured against the vehicle, the finance company may be entitled to receive the insurance proceeds first.
4. The money is applied towards your outstanding loan.
5. If there's a remaining balance, you will generally still owe that amount to the lender.

The important point is that writing off the car does not automatically cancel the loan. You can end up without the car but still having repayments to make.

The exact process depends on your finance agreement, your insurance policy and how the settlement is handled.

2. Check whether you have insurance that covers the shortfall

Before agreeing to pay the difference yourself, check whether you have Guaranteed Asset Protection (GAP) insurance.

GAP insurance is specifically designed to cover some or all of the difference between your car insurance payout and the amount you still owe on your finance. The amount covered depends on your policy. The Financial Markets Authority explains how GAP insurance works.

You might have purchased this cover when you bought your car, even if you don't remember arranging it.

Check:

• Your original car finance documents.
• Any additional insurance policies sold to you by the car dealer.
• Your emails for terms such as "GAP insurance", "loan protection" or "asset protection".
• Whether you have consumer credit insurance, which may help with loan repayments in certain circumstances.

If you find a policy, contact the provider and ask whether you can claim.

If you don't have GAP insurance, don't panic. There are still options for managing the shortfall.

3. Make sure the insurance payout is fair

You don't necessarily have to accept the insurer's first offer.

If the payout is based on your car's market value, check whether the valuation is reasonable for a vehicle of the same make, model, year, mileage and condition.

For example, suppose:

• Your outstanding loan is $15,000.
• The insurer offers $10,000.
• Similar cars are selling for around $12,000.

If the insurer has undervalued your car, successfully challenging the valuation could reduce the amount you owe after the settlement.

Here's what you can do:

1. Ask the insurer for a copy of its valuation report.
2. Look for comparable vehicles advertised for sale in New Zealand.
3. Check your policy to establish whether the settlement is based on market value or an agreed value.
4. If you believe the offer is too low, provide your evidence and ask the insurer to reconsider.

You can also make a formal complaint to the insurer if you cannot resolve the disagreement. If necessary, you can approach its independent insurance dispute resolution service.

The government's Consumer Protection website explains how to challenge an insurance payout.

4. Talk to your finance company about the remaining debt

If there is still money owing after the insurance settlement, contact your finance company as soon as possible.

Explain that your vehicle has been written off and that the insurance payout won't cover the outstanding loan.

Ask them to confirm:

• The exact amount remaining after the insurance payment.
• Whether any additional interest or fees will apply.
• Whether they can arrange affordable repayments for the remaining balance.
• Whether they can extend the repayment period or temporarily reduce your payments.

Depending on your circumstances and what your lender agrees to, you may be able to negotiate a repayment arrangement.

What if you can't afford the repayments?

You may be able to apply for financial hardship assistance.

Under New Zealand's consumer credit rules, eligible borrowers can apply for changes to their credit contracts when unforeseen circumstances make repayments difficult. Depending on the circumstances, options may include extending the loan term or postponing payments.

Contact your lender promptly, particularly if your income has changed or you're struggling to cover essential expenses.

The government's guide to car loans and financial hardship explains the available options.

Important: Don't simply stop making repayments without contacting your lender. Until you've agreed on a different arrangement, you should understand what your existing contract requires.

5. What happens if you can't pay the shortfall?

If you cannot afford the remaining debt, you still have options.

You can:

• Negotiate a repayment plan based on what you can realistically afford.
• Ask a free financial mentor to help you communicate with your lender.
• Explore other debt-relief options if you cannot repay what you owe.

If the debt remains unpaid, the lender may pursue debt recovery and, depending on your contract and circumstances, take legal action. Missed payments and debt collection can also affect your credit record.

You can get free, confidential financial guidance through MoneyTalks.

Don't assume you have to find the entire shortfall immediately. Contact your lender and find out what arrangements are possible.

---

Let's work out what this means for your situation

I can help you understand your options more specifically, but there are two things that will make a big difference.

First, roughly how much do you still owe on the car loan, and how much is the insurance company offering to pay?

For example, you could tell me "$20,000 owing and a $14,000 payout".

Second, what type of insurance do you have?

• Comprehensive car insurance.
• Third-party insurance.
• Not sure.

With those details, I can help you work out the likely shortfall and identify the most practical next steps in New Zealand.