What Happens if You Crash a Financed Car Without Insurance?

Learn about the implications of driving a car without insurance and the requirements for financed cars with Savvy's handy guide.

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, updated on February 16th, 2024       

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Car Insurance Banner - A crashed car on the road after an accident

Taking out a car loan is a common practice for millions of Australians looking to purchase their dream vehicle. However, before you hit the road, it’s important to understand your insurance obligations and ensure you are covered in the case of an accident. In this guide, we look at the requirements for financed cars and the types of insurance you may be required to hold.

Can I drive a car in Australia without insurance?

No – whether your car is financed or you own it outright, all vehicles in Australia are legally required to have a basic level of car insurance. Known as Compulsory Third Party (CTP) insurance, or a Green Slip in New South Wales and the Motor Accident Injuries (MAI) Scheme in the ACT, it protects against the potential financial consequences of causing injury or death to other road users with your car, including the costs of medical treatment, ongoing care, lost earnings and compensation.

Driving without CTP insurance is illegal, and if caught you may face consequences such as fines, licence suspension or vehicle impoundment. As well as impacting your driving record, it also exposes you to significant risks and consequences, including personal financial liability for property damage, medical expenses and legal fees if you cause an accident. You will also be responsible for repairing or replacing your vehicle in case of an accident, theft or other damage.

Are there any extra car insurance requirements for a financed car?

Yes – if you have taken out a loan to buy your car, your lender will likely stipulate that you hold additional insurance, typically comprehensive cover, on top of CTP insurance. This is to protect their investment and ensure they can recoup costs should the car be written off. 

Comprehensive car insurance serves as a safety net for both borrowers and lenders in the event of unforeseen incidents. It is the most extensive type of car insurance available in Australia and covers damage to other vehicles or property resulting from the use of your car, as well as damage to your car caused by unexpected events such as crashes, fire, theft or adverse weather conditions.

If you did not have this insurance, you would be responsible for the entire cost of repairing or replacing the vehicle if it was damaged in an incident, as well as paying back the remainder of your car loan.

What is car gap insurance?

Car gap insurance is an additional layer of protection for vehicles with outstanding finance. If you have a car loan and get into an accident resulting in a total loss, your regular car insurance may not cover the full amount owed to the lender or car dealer. Gap insurance steps in to cover the difference between the insurance payout and the remaining loan balance, minimising the financial burden.

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