Most South Africans assume that if their financed car is stolen or written off, their insurance payout will settle whatever is still owed to the bank.<\/p>\n\n\n\n
Unfortunately, that is not always the case.<\/p>\n\n\n\n
Many motorists only discover after a claim has been paid that they still owe thousands, or even tens of thousands of rand, to their finance provider.<\/p>\n\n\n\n
The reason is simple: the insurer and the bank are looking at two different numbers.<\/p>\n\n\n\n
The insurer pays an approved claim for a stolen or written-off car based on what the policy says the car was worth just before it was lost. The bank looks at how much is still outstanding on your car loan.<\/p>\n\n\n\n
If those amounts do not match, you can be left owing the difference. This is known as a finance gap or credit shortfall.<\/p>\n\n\n\n
This risk is often greater than many motorists realise, particularly where the vehicle was financed with:<\/p>\n\n\n\n
Cars generally depreciate over time as they age and accumulate kilometres.<\/p>\n\n\n\n
Vehicle finance, however, does not always reduce at the same pace.<\/p>\n\n\n\n
The amount still owed to the bank depends on factors such as:<\/p>\n\n\n\n
As a result, a driver can find themselves owing more on the vehicle than the insurer pays following a total-loss claim.<\/p>\n\n\n\n
This is especially common during the early years of a finance agreement when a large portion of the debt remains outstanding.<\/p>\n\n\n\n
A balloon payment is a lump sum that becomes payable at the end of a vehicle-finance agreement. The main attraction is that it reduces monthly instalments, making a vehicle appear more affordable.<\/p>\n\n\n\n
However, the outstanding balloon amount does not disappear if the car is stolen or written off before the loan reaches maturity.<\/p>\n\n\n\n
In practical terms, this means a customer can be left with a larger outstanding balance than expected when a claim occurs.<\/p>\n\n\n\n
WesBank gives an illustrative example of a R350,000 car financed over 60 months at 11.5% interest. With no balloon, the monthly instalment is about R7,700. With a 20% balloon, it falls to about R6,830 a month \u2014 but R70,000 is still due at the end, and the total amount repaid is higher.<\/p>\n\n\n\n
Standard Bank has also previously told BusinessTech that a third of its car-finance customers had selected the maximum balloon payment available during the preceding year, while new-car purchases using balloon payments had increased 41% over five years<\/strong>.<\/p>\n\n\n\n That remaining debt can contribute materially to a finance shortfall if the vehicle is lost before the finance agreement ends.<\/p>\n\n\n\n Consider the following example.<\/p>\n\n\n\n A driver purchases a vehicle for R420,000<\/strong> using a small deposit and a balloon payment.<\/p>\n\n\n\n Two years later, the vehicle is stolen.<\/p>\n\n\n\n The insurer approves the claim and determines the settlement value to be R310,000<\/strong>.<\/p>\n\n\n\n However, because a substantial finance balance remains outstanding, the driver still owes the bank R360,000<\/strong>.<\/p>\n\n\n\n The numbers look like this:<\/p>\n\n\n\n Outstanding finance balance:<\/strong> R360,000<\/p>\n\n\n\n Insurance settlement:<\/strong> R310,000<\/p>\n\n\n\n Finance shortfall:<\/strong> R50,000<\/p>\n\n\n\n R360,000 \u2013 R310,000 = R50,000 still owed to the bank<\/strong><\/p>\n\n\n\n Even though the car is gone and the insurance claim has been paid, the customer remains liable for the outstanding R50,000.<\/p>\n\n\n\n For many households, finding that amount at short notice can create significant financial pressure.<\/p>\n\n\n\n This is precisely the situation Credit Shortfall Protection is designed to address.<\/p>\n\n\n\n Credit shortfall cover helps when the insurance payout for a stolen or written-off car is less than what you still owe on the car loan. It pays an additional amount towards that difference, up to a set limit.<\/p>\n\n\n\n Prime South Africa<\/strong><\/a> offers Credit Shortfall Protection as an optional benefit<\/strong> on its Comprehensive and Customised car insurance products. The benefit can provide up to 20% of your car’s current sum insured<\/strong> \u2014 the value shown on your policy \u2014 towards a qualifying shortfall, provided the applicable policy terms are met.<\/p>\n\n\n\n Using the example above:<\/p>\n\n\n\n Outstanding finance balance:<\/strong> R360,000<\/p>\n\n\n\n Insurance settlement:<\/strong> R310,000<\/p>\n\n\n\n Qualifying shortfall:<\/strong> R50,000<\/p>\n\n\n\n If the available Credit Shortfall Protection limit is sufficient to cover the entire qualifying shortfall, the benefit could contribute the full R50,000<\/strong> towards settling the remaining finance balance, subject to policy terms and limits.<\/p>\n\n\n\n If the shortfall is higher than the benefit limit, the customer remains responsible for the difference.<\/p>\n\n\n\n The benefit also does not cover:<\/p>\n\n\n\n The important question is therefore not only whether you have Credit Shortfall Protection, but how much of a potential finance gap it could cover and what you may still need to pay yourself.<\/p>\n\n\n\n If you are financing your car and want to see how Prime Comprehensive cover and optional Credit Shortfall Protection could help, you can get a Prime car insurance quote online<\/strong> and compare it with the cover you have now.<\/p>\n\n\n\nWhen the numbers don’t add up<\/h2>\n\n\n\n
Where Credit Shortfall Cover can help<\/h2>\n\n\n\n
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