Credit Shortfall Insurance

WHAT IS CREDIT SHORTFALL INSURANCE

Credit shortfall insurance (top up cover) protects you from owing money on a financed vehicle after an insurance payout, covering the gap between the vehicle's value and the outstanding loan amount.

Credit shortfall insurance, also known as gap insurance, is designed to cover the difference between the amount you owe on your vehicle and the amount your insurance company pays out in the event of a total loss, such as theft or an accident that writes off the vehicle. This type of insurance is particularly important for new cars, which can depreciate significantly in value as soon as they are driven off the lot.

How Does It Work?

When you finance a vehicle, you may owe more than its current market value, especially shortly after purchase. If your car is stolen or written off, your comprehensive insurance will typically cover the market value of the vehicle, which may be less than what you owe to the bank or finance company. Credit shortfall insurance steps in to cover this difference, ensuring you are not left with a debt for a vehicle you no longer own.

Who Needs Credit Shortfall Insurance?

•     New Car Buyers: Those purchasing new vehicles, which depreciate quickly.

•     Financed Vehicles: Anyone financing a vehicle where the loan amount is significantly higher than the vehicle's market value.

•     Used Car Buyers: Buyers of used cars who have financed a large portion of the purchase price should also consider this coverage.

WHAT IS BALLOON / RESIDUAL PAYMENTS

A balloon payment is a large, one-time sum due at the end of the loan term, following smaller periodic payments that typically cover primarily or exclusively interest costs. This structure, often found in balloon loans, allows borrowers to maintain lower monthly payments initially. This option however artificially inflates debt because of the devaluation of the vehicle.

HOW DOES IT WORK?

Car finance with a balloon payment allows you to have lower monthly installments throughout the loan term, with a larger lump sum payment due at the end of the agreement. The advantage is:

•     Lower Monthly Payments: Balloon payments reduce the amount you pay monthly compared to traditional car loans.

•     Final Payment: At the end of the loan term, a significant "balloon" payment must be made to complete the purchase of the vehicle.

•     Affordability: It makes car ownership more affordable by deferring a portion of the loan to the end of the agreement.

EXCLUSIONS

•     Extra charges are excluded

•     No cover for arrears, early settlements, penalties, credit life premiums or warranties.

•     NEGATIVE EQUITY FROM OLD LOAN – if previous debt was rolled over

•     If the deal was structured incorrectly shortfall will not cover it

•     The claim will only be valid if the vehicle claim itself is entertained.

IMPORTANT

•     The ballon payments are excluded from standard shortfall cover and MUST be noted to be included in the credit shortfall

•     The initial deposit paid when the vehicle was purchased, will not be reimbursed.