Thinking Of Buying A New Car?

So you’ve finally bought that brand new car. Look, the truth is a brand new car is not exactly a long term investment. Unlike a house your car will depreciate in value over time. But few things beat that ‘new-car’ smell, and the excitement when you drive it off the showroom floor. And, before you pull out of the dealership, we know you have your short term insurance sorted out, right? It’s a no brainer! But there might have been something else, just as crucial, you forgot to check.

What Is Credit Shortfall Cover?
Credit shortfall pays the difference between what your vehicle is insured for, and the amount you still owe to the bank. For example, let’s say you purchase a new vehicle for R150, 000. The insurance company insures it at R150, 000. “No problem,” you say “so if I ‘write-off’ my car then the insurance company settles what I owe to the bank?” Problem is you might owe the bank R180, 000 if you include all the finance charges/interest. Perhaps the banks won’t try and rip you off for the full finance charge, but are you willing to take a chance by not having this cover in place? Besides having to buy a new car without a trade in or deposit, you’d still need to settle the outstanding amount…not an ideal situation!

When won’t you need credit shortfall?
Besides the obvious scenario of buying the vehicle, cash, you also wouldn’t need credit shortfall cover a year or two down the line after purchasing a car with finance. At least once a year, ascertain the amount that you still owe to the finance house and compare this to the amount your vehicle is insured for. If what you owe to the bank is less than or equal to the insured value then you don’t need credit shortfall.

But before you cancel your credit shortfall, just make sure that your car is still insured at the correct value. Remember that even though your insurance policy states that the vehicle is insured for R150, 000, it might only be worth R100, 000 after a year or two. The insurance company would then only pay out R100, 000 – not R150, 000!

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The iHound