You have just tied yourself to six years of paying eye-popping amounts to fund your newly acquired favourite wheels and agreed to a hefty insurance premium, but did you know you are not done?
Now you need to get credit shortfall cover (CSC).
Say what? Well, for countless South Africans, including yourself, a car is not just a convenience; it’s a necessity you have to finance through a bank loan.
But what happens if that car is stolen or written off in an accident? You wrongly assumed that your comprehensive insurance would make you whole.
However, a critical financial trap, known as a credit shortfall, can leave you paying for a car you no longer own. This is where this cover becomes your essential financial safety net.
So what is it exactly?
Sakina Ntuli, spokesperson at King Price Insurance, says CSC is a specialized form of cover designed for financed vehicles to protect you from the financial quagmire that can arise between what your insurance company pays out and what you still owe the bank.
Ntuli explains: “Credit shortfall cover applies to financed vehicles and protects you from the financial gap between the vehicle’s value at the time of loss and the outstanding amount owed to the bank after a valid insurance claim is settled.”
But shouldn’t it be automatic?
“No, it’s not. It must be explicitly listed on your policy schedule, and an additional premium is required to activate the benefit,” she says.
She further advises consumers to shop around, suggesting, “You may also consider comparing premiums with your finance house to ensure you’re getting the best value.”
The shortfall arises because a car is a depreciating asset. She says the cover functions similarly to insurance but is different because of what it indemnifies.
“Without CSC, you could remain liable for the outstanding loan on a vehicle that has been written off or stolen, which could place you in a financially vulnerable position.”
Imagine still owing R50 000 on a car that has been reduced to a wreck because you didn’t cover this eventuality?
“If the amount you owe the bank exceeds the vehicle’s retail value, the shortfall remains your responsibility,” warns Ntuli.
“Without CSC, you would either need to settle this amount directly or roll it into a new finance agreement when purchasing another vehicle.”
But given its obvious importance, why isn’t CSC a standard feature? “Most insurers offer CSC as an optional add-on for financed vehicles,” clarifies Ntuli.
If your current insurer doesn’t provide it, you do have another option. “You can enquire with the bank that financed your vehicle.
“However, foregoing this protection is a significant gamble.”
As Lt-Gen Nhlanhla Mkhwanazi recently put it, the Big 5 is circling, and the prey is your
asset.
CSC could be a small price to pay for the peace of mind that you won’t be saddled with a
massive debt for an asset that you no longer have.
