What to do if your car on finance is broken beyond repair

Your car’s dead, the repair bill’s sky-high, or insurance has called it a write-off. But the finance payments? Still ticking over. If that sounds like your situation, you're not alone, and you're not powerless either.

Your options depend entirely on your type of car finance:

• Hire Purchase (HP car finance) means you're buying the car through monthly instalments.
  
  
• Personal Contract Purchase (PCP finance) comes with smaller monthly costs but a big final balloon payment.
  
  
• Personal Contract Hire (PCH) is long-term leasing where you never own the car.

Each type unlocks different rights if your car’s beyond repair, so knowing your deal is key.

A car that’s broken beyond repair usually means the cost to fix it is more than its value, making it an economic write-off. It could also mean a major mechanical failure (like an engine blown) or an accident resulting in a total insurance loss. The cause changes what legal protections apply, so knowing what broke (and how) is crucial.

We’ll walk you through what happens next, starting with the big question: Do you still have to pay? Then we’ll unpack your rights under the Consumer Rights Act 2015, explain your insurance position, and guide you on resolving disputes.

Yes, it’s frustrating and might feel like you’re pouring cash into a scrap heap. But with the right steps, you can protect your credit score and get back in the driver’s seat. Let’s sort it together.

Key takeaways

• Keep paying your finance unless your car finance agreement has ended legally or the lender accepts a formal rejection.
  
  
• You can cancel your car finance due to a faulty car within 30 days. After 30 days, faults found within six months are assumed to be pre-existing unless the dealer proves otherwise.
  
  
• Insurance write-off? The insurer pays your finance lender first; GAP insurance might cover any leftover amount.
  
  
• Your main options: Request a repair or replacement, formally reject the car, or voluntarily terminate the agreement (if you've paid 50% or more).
  
  
• Got a dispute? Complain in writing to both the dealer and your car finance provider. Still stuck? Escalate to the Motor Ombudsman or Financial Ombudsman Service.

Should you continue paying finance on a broken car?

Yes, you must continue making payments unless your finance agreement has legally ended. A broken car doesn’t break the contract. Finance agreements only end when the car is officially rejected, the balance is settled, or the lender agrees to termination.

You could hurt your credit score and risk court action if you stop making finance payments without agreement. It’s like ditching your gym without cancelling, the bills keep coming.

Your deal type shapes your rights:

• With HP or PCP, the lender owns the car until you've paid it off. That means they're responsible under the Consumer Rights Act and must handle faults.
  
  
• With PCH (leasing), it’s a hire contract, so your rejection rights are limited. Some PCH deals include maintenance, but the route to resolve faults is different.

Three situations in the UK may allow you to stop paying legally on a broken car on finance:

1. The lender accepts your formal rejection of the faulty car.
   
   
2. Your insurer’s payout covers the finance balance in full after a write-off.
   
   
3. The lender agrees to a payment pause (forbearance) while you resolve the issue – but always get this in writing.

Top tip: Contact your lender as soon as a problem arises. Explain the fault in writing, especially if it's something major like a seized engine, and request a temporary arrangement. Lenders often offer short-term support if you're upfront. Keep records of every conversation. This shows you’re cooperating and not defaulting.

Still feeling the pinch? Depending on your circumstances, refinancing might be an option to ease your current payments.

What are your rights if a financed car is faulty?

If your financed car develops a fault, the Consumer Rights Act 2015 (CRA) puts the finance company on the hook, not the dealer. The CRA offers protection if your car suffers from an engine failure within a specific timeframe. For HP and PCP agreements, the lender must ensure the car is of satisfactory quality, fit for purpose, and matches its description. 

This Act applies to cars bought from a trader (dealership, online, etc.) after October 1st, 2015. If you bought privately, unfortunately, the CRA doesn't apply.

Your rights depend on when the fault appears:

• Within 30 days: You have 30 days from the purchase date to reject the car and receive a full refund if the engine failure renders it unfit for purpose, not of satisfactory quality, or doesn't match the description you were given. This applies even if you discover the issue after a few days of driving. You don’t need to prove when the fault started. Email your rejection to the finance company, copying in the dealer. Include a clear description, any diagnostic evidence, and photos of the condition and mileage. Stop using the car if it’s unsafe.
  
  
• 30 days to 6 months: In most cases, the finance company is entitled to one attempt to repair or replace the vehicle, provided this is completed within a reasonable time and without causing significant inconvenience. If that fails or takes too long, you can reject it or request a price reduction. Refunds may include “fair use” deductions based on mileage.
  
  
• After 6 months: You can still make a claim, but now the burden’s on you to prove the fault existed at delivery. You’ll likely need expert evidence like a diagnostic report or service history notes to show long-term or pre-existing issues. Serious faults may still qualify for rejection if they significantly alter the car’s condition from what was promised.

Think of it like a sliding scale; the sooner you act, the stronger your position. So don’t wait.

No matter when the fault shows up, you’re not required to use a warranty first. Statutory rights under the Consumer Rights Act always come first.

If the finance company disputes your claim, you can consider getting an independent inspection. And if all else fails, you can escalate to the Motor Ombudsman or the Financial Ombudsman Service (FOS).

What are your options if your car on finance is beyond repair?

If your financed car is beyond repair (due to a mechanical failure or accident), you’ve got four main routes to consider, each with different legal, financial, and practical impacts. 

Whichever you choose, first get a diagnosis. You can instruct a qualified mechanic to assess the car's condition (like an engine blown) and provide a written report. This provides the necessary evidence to support a claim under the Consumer Rights Act or to determine if the repair cost makes it an economic write-off.

1. Use your consumer rights

If the fault makes the car unfit for purpose or not as described, you can formally reject the car under the Consumer Rights Act 2015. This applies to HP and PCP agreements. Submit your rejection in writing with evidence, and request collection. A successful rejection ends the agreement and clears your remaining balance. However, you may incur some additional fees depending on usage and condition.

2. Pursue repairs or replacement

Repairs are worth exploring if covered by warranty or the manufacturer's goodwill. Get independent quotes as dealer costs are often higher. If the engine repair costs over 70% of the car’s value, it’s considered an economic write-off.

• Cost Check: Replacing a blown engine can be costly. On average, replacement estimates range from £1,000 to £4,000 or more, depending on the car’s make, model, and labour rates. Compare this estimate against the car's current market value to determine if a repair is financially viable.
  
  
• Warranty Claims & Evidence: Warranty claims depend on terms and service history. Some warranties exclude wear and tear or specific parts. When claiming, your service records (maintenance documentation) act as a vital testament to the vehicle's upkeep, helping to prevent the provider from denying the claim based on misuse or neglect.

3. Negotiate a return

In some cases, you can arrange a voluntary return by mutual agreement. This isn’t the same as legal rejection; it’s a deal. Finance companies may accept returns to avoid dispute costs. You might settle outstanding balances or hand back the car if both parties agree. Always get terms, including settlement amounts and credit file reporting, in writing.

Be careful not to confuse this with voluntary surrender, where you admit you can’t pay. This route damages your credit score and may leave you owing money. Only use this option as a last resort.

4. Use Voluntary Termination (VT)

If you’ve paid 50% of the total finance amount, you can walk away using your legal right to voluntary termination under Section 99 of the Consumer Credit Act.

To use VT:

• Write to the finance company stating you're exercising your Section 99 right.
  
  
• Return the car in fair condition. Your agreement will outline what's acceptable, but the BVRLA wear-and-tear guide is often used as a handy benchmark.
  
  
• When done correctly, voluntary termination isn’t normally treated as a default. However, different lenders may report it differently, so it’s worth confirming how it will appear on your credit file.

If you're on a PCP deal, the 50% threshold includes the balloon payment so you don’t need to pay the balloon separately to use voluntary termination. Once you've paid at least half of the total amount payable (including the balloon), you're eligible.

PCH agreements don’t qualify for VT, as they’re hire contracts, not credit.

Before choosing any option, get clear on your financial position. Check your car’s market value, current settlement figure, and whether you’re in arrears. This snapshot helps avoid surprises like unexpected negative equity or early termination penalties on PCH deals.

Need help calculating costs or working out your budget? Use our car finance calculator to see what fits your budget.

What if my case falls outside of the protection offered by the Consumer Rights Act?

There may be circumstances that leave you outside of the protection offered by the Consumer Rights Act 2015, for example, if you have caused the issue or the problem was clearly not present at the point of purchase. In this case, there are still a few options available to help remedy your engine failure.

Review Your Insurance & Warranty

Standard comprehensive or third-party car insurance generally does not cover engine failure resulting from wear and tear, age, or lack of maintenance. However, you should review your policy for two specific types of cover:

• Extended Warranties: If your vehicle is still under an extended warranty, engine failures may be covered depending on the policy's terms and conditions.
  
  
• Mechanical Breakdown Insurance (MBI): Some specialised policies specifically cover major mechanical issues, including engine failure, that are not related to an accident.

What happens if your car is written off by insurance?

When a financed car is written off, the insurance payout goes straight to the finance company as they own the car until you've paid it off. If there's any surplus, it comes to you. But if the payout doesn’t cover the full balance, you’re liable for the shortfall.

This is where GAP (Guaranteed Asset Protection) insurance helps. It covers the difference between what your insurer pays and what you still owe. Finance GAP clears any remaining finance, while Return to Invoice GAP restores your original purchase price. No GAP? Talk to your lender; they may accept a reduced settlement or offer a payment plan.

Act fast: Report the write-off to your insurer and finance company as soon as possible. Acting quickly helps prevent delays in the claims and settlement process. Keep making payments until the claim is settled, as missed instalments hurt your credit score.

Insurers typically settle claims within a few weeks of acceptance, but timings vary depending on the provider, claim complexity, and vehicle valuation. In addition, market valuations, excess deductions, and pre-existing damage can all reduce the final payout.

Vehicle write-offs are frequent on UK roads, with some industry data suggesting that over 384,000 cars were written off in 2022 alone.

How to handle disputes with dealers or finance companies

Disagree with a valuation or repair decision? Start by complaining in writing to both the dealer and your finance provider. Include:

• Diagnostic reports
• Photos
• Emails or texts
• Repair quotes
• Clear deadlines for response

Businesses have eight weeks to resolve complaints. If you’re unhappy with their response, or they do not respond within eight weeks, you can either escalate the situation to the Motor Ombudsman (dealer issues) or the Financial Ombudsman Service (finance disputes).

These services are free, impartial, and their decisions are binding on the business.

Keep paying during any dispute unless your lender confirms otherwise in writing. Missed payments harm your credit even if you're in the right.

In stubborn cases under £10,000, small claims court is another option, but you should weigh the cost of court fees and expert evidence against the amount you’re trying to recover. In many cases, a well-documented, negotiated settlement gets better results.

Disclaimer: This blog post is for general information purposes only and does not constitute legal or financial advice. Your rights and options will depend on your individual circumstances and the terms of your agreement.