Wynand van Vuuren, client experience partner at King Price Insurance

When we buy a car, we often focus on whether the monthly instalment and insurance premium fit our budget. What many of us overlook, however, is what would happen if our car is written-off or stolen while we still owe money to the financing institution.

Wynand van Vuuren, client experience partner at King Price Insurance, says this is where credit shortfall cover comes in: “If you borrow money from a financial institution in order to buy a car or motorbike that you insure comprehensively, and it’s then written-off, stolen, or hi-jacked, then shortfall cover pays the amount that you still owe the financer after your insurer has settled the claim for the loss of the car or motorbike.”

The gap most drivers don’t plan for

Cars start losing value the moment they leave the dealership and, if you finance a car, the total interest on the loan amount is added upfront. In the early years, this can mean that you owe more than the car’s purchase price or value… And this could be more than your insurance payout.

“Insurers pay out a car’s retail value, not the amount you still owe on it. If your payout is less than your outstanding finance amount, you’ll need to pay the difference out of your own pocket. You could end up still paying instalments for a car you no longer have,” says van Vuuren.

This is where credit shortfall has your back.

Why this cover matters now

With car prices rising, longer finance terms being offered, higher balloon or residual values becoming more common, and interest rates remaining elevated, many South Africans risk being in a shortfall position. If you don’t put down a deposit when buying a car, choose a long loan repayment term and a high residual value, and include extras like service plans or warranties in your finance, you’re especially vulnerable to a credit shortfall.

What it covers

Put simply, credit shortfall steps in if there’s a gap between your insurer’s payout and what you still owe the financer after your car has been declared a ‘total loss’.

But, Van Vuuren notes that shortfall cover doesn’t cover every possible cost linked to your finance. “If your car and credit shortfall premiums are up to date, and the claim for the total loss of your car is valid, you should be covered for the insured shortfall. However, the excess amount applicable to the claim for your car, any arrears or re-advancements on your finance account, and some other costs, may not be paid out. It’s important to read your policy schedule and understand what is and isn’t covered.”

It’s also important to know that credit shortfall cover is a separate insurance product with its own premium, and you can add it if you already have comprehensive car insurance in place.

When choosing an insurer, always look for clarity and accessibility. Your policy should be easy to understand. You should be able to check whether you have shortfall cover, add it if you need it, and update your details easily via a WhatsApp channel or self-service portal, or by chatting to a consultant if that’s what you prefer.

Van Vuuren concludes: “Credit shortfall cover isn’t about expecting the worst. It’s about protecting yourself from a scenario that could derail your finances long after the total loss of a financed car.”