Credit Shortfall Insurance For Car Owners
July 29, 2015
Credit shortfall insurance for car owners comes in to the equation when the car of your dreams gets stolen.
You’ve not completed your repayments for it and have been paying your premiums faithfully every month.
But, in your wildest dreams, you never foresaw a time when you’ll fail to honour your obligation to the bank and insurance company.
So what Happens if Your Car gets Stolen or Wrecked beyond Repair?
Easy, you say, I’ll file a claim with my insurer. Your right, they will compensate you the agreed value of the car, if everything is in order and your paperwork checks out.
But what about the outstanding balance you still owe the bank? Best case scenario you will buy a cheaper vehicle and continue repaying your car loan.
But the good news is that you needn’t carry on paying for a car you no longer have. Thanks to top-up cover or credit shortfall insurance, the remainder of your debt can be settled as you move on to a new car.
Credit Shortfall Insurance for Car Owners – What’s That?
You may not have heard of this kind of cover but it has been around for a while. Sometimes it is offered as part of a car insurance policy while some companies offer it as a stand-alone product.
Some financial institutions that offer car loans or asset financing make taking up top-up cover a prerequisite to granting the loan. However you find this cover being offered, you will be wise to sign up for it, especially if you’re purchasing a brand new car.
Even if you’re buying a used car model that was recently released, you should consider yourself a prime candidate for credit shortfall insurance.
Oh no, you say, the last thing I need is higher premiums. Truth is you will pay a higher premium, but not by as much as you think. And then think of the benefits.
Even now Your car Loan Repayments Take out a Big Chunk of Your Paycheck
Those who paid a small deposit will be quick to attest to the truth of this statement. A lot of that which you repay every month is interest on the loan and by the time you’re done, you will have given the bank way more than the car cost. The gap between the value of the car and your loan repayment becomes even wider as the years go by and your car depreciates in value.
Credit Shortfall insurance for Car Owners is the Same as Top-up Cover
One important thing to note is that top-up cover is only available to those who have a comprehensive vehicle cover. Therefore if you’re a third party insurance policy holder or if your car is only insured against fire and theft, you won’t be able to enjoy its benefits.
It is also worth noting that there are limits to what credit shortfall insurance will cover. Balloon payments, the amount you will owe the bank at the end of the period of the loan, is not covered by the basic top-up cover, for instance. But if you add a little extra on your premium this can be included in your payout.
* Go here to read about medical gap cover for medical aid members, the same principle as credit shortfall insurance.
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All info was correct at time of publishing