What Is Credit Shortfall Insurance? You Could Come Short Without It.
Credit shortfall insurance is essential if you don’t want to still be paying for a car you no longer have.
Many of us dream of driving around in a flashy car. For most of us, the only way of owning a car is to get finance through a financial institution or bank.
In South Africa, the risk of your car being stolen or written off before you’re finished paying for it are a reality. There are over 11 million uninsured drivers on the road. You read that right, besides which, the value your new car is already depreciating.
Think of Credit Shortfall Insurance as a Safety Net
Even though you have insurance, there might well be a gap between what your car is insured for and what you still owe the bank. This gap is known as credit shortfall.
There are a host of insurance policies that are available on the South African market. These insurance policies cater for new, used and old cars.
If you have insurance, it will pay out for the replacement value of your car. You will however, discover it is considerably less than the price you paid for it.
Another Name for Credit shortfall Insurance is Top-up, or Gap insurance
These policies are designed to cover the gap between what you paid for the car and the replacement value of the car. This amount can cripple many people financially if they are not prepared for this.
It is therefore advised that you add on this extra type of insurance to your policy to cover your new car. Even with an old car, credit shortfall insurance can save you a lot of frustration and loss of finance.
How Much Car Insurance Can You Afford?
When you take out insurance on your car, you can decide whether you want to cover it for its retail price, its trade value price or the market price.
The retail value of cars is generally the price of what a similar vehicle is currently for sale at at a car dealership. That price is usually the price you insure it for.
Trade value is the price you would get for your car if you traded it in. The market value is the average price between what the retail value is and the trade value. Price is also determined by the condition of your car and how much mileage is on the car.
There are a few things that credit short fall insurance does not cover –
- Excess that is payable on your claim
- Sound equipment or accessories
- Installments that you haven’t paid yet, and the interest that has accumulated on this
- Extra finance charges
- Early settlement fees
Remember that credit shortfall insurance is vital if you have bought a new car. There will come a time while paying off your car that the amount still owing is less than the value of the car. When you are aware of this, then you don’t need credit shortfall insurance any longer.
Be Prepared with Credit shortfall Insurance
Credit shortfall insurance is vital if you don’t have money to put a large deposit down on a new car. Always be prepared, because if you do suffer a major loss and you have not taken out credit shortfall insurance, you can be crippled financially.
You’ll be owing the bank thousands – but for what? Where is the car to show for it?
In South Africa where theft is a common activity, credit shortfall insurance will make it that you aren’t paying for something you no longer have.
Don’t be sorry – be prepared.
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