What Is Credit Shortfall Insurance and Why Should You Care?

What Is Credit Shortfall Insurance and Why Should You Care?

When you buy a car, the last thing you want to think about is writing it off in an accident or having it stolen. But if that ever happens—especially while the vehicle is still under finance—you could be in for a costly surprise. That’s where Credit Shortfall Insurance comes in.

Let’s break it down…

When your car is insured, it’s typically covered for its current Retail Value—not what you still owe the bank. And here’s the problem: what your car is worth and what you owe on it are not the same thing.

In most cases, especially in the early stages of your finance agreement, the Settlement Amount (what you still owe the bank) is higher than the car’s insured Retail Value. This difference is known as the Credit Shortfall.

If your car is written off or stolen, your insurer pays out the Retail Value—but you’ll still owe the difference to the bank out of your own pocket. Unless, of course, you have Credit Shortfall Insurance.

Why is there a difference between Retail Value and Settlement Amount?

There are two main reasons:

1. Depreciation

The moment you drive your car off the showroom floor, it starts losing value—typically between 7.5% and 15% per year. This means your insurance payout (Retail Value) drops quickly over time.

2. Finance Interest

Your finance agreement includes interest that is added on top of the car’s price. Even if you tried to settle your loan a month later, the bank’s Settlement Amount would be higher than the vehicle’s Retail Value.

A simple example:

You buy a car for R300,000.

• After six months, it’s insured for R270,000 (due to depreciation).

• You still owe R310,000 on your finance agreement.

• Your car is written off in an accident.

• Insurance pays R270,000. You still owe the bank R40,000.

That R40,000 is your Credit Shortfall. And unless you have cover, that money comes out of your own pocket.

So, what is Credit Shortfall Insurance?

Credit Shortfall Insurance covers that difference between:

• The Retail Value paid out by your insurer, and

• The Settlement Amount owed to the bank

  
  

In short, it protects you from paying off a car you no longer have.

Why should you care?

Because accidents and theft happen. And if you’ve financed your vehicle—especially without a large deposit or with a balloon payment—you’re most likely sitting with a Credit Shortfall right now. This insurance isn't just a “nice-to-have”. It's a lifeline in those first 12–36 months of your finance agreement when you're most exposed to a payout gap.

Final word:

Don’t wait for a write-off to find out you’re underinsured. Check your finance documents or speak to your insurer to see if you already have Credit Shortfall Insurance.

If not—it’s time to seriously consider it.