Wondering if you need shortfall cover? Learn how credit shortfall insurance protects you from paying off a car you no longer have, and when it’s worth it.
You’ve just driven your new car out of the dealership, and it already feels like freedom. But here’s the not-so-fun part: the second you leave the lot, your car starts losing value. If your car is stolen or written off in an accident, your insurer will only pay out what the car is worth at that moment, not what you still owe the bank.
That gap between your car’s value and your outstanding loan is called a shortfall. And unless you’ve got spare cash lying around, it can leave you stuck paying off debt on a car you don’t even have anymore. That’s where shortfall cover (a.k.a. credit shortfall insurance or gap cover) comes in.
What is shortfall cover?
Shortfall cover is an add-on insurance that pays the difference between:
- What your car insurer pays if your car is written off or stolen (its retail, market or trade value at the time), and
- What you still owe your bank or finance house.
Without it, you could be left paying off a car you no longer have. Shortfall cover settles that gap.
Example: If your car is stolen and your insurer pays R180,000 (retail value), but your loan balance is R210,000, shortfall cover pays the R30,000 difference so you don’t have to.
Why might you have a shortfall?
It usually comes down to your car’s rate of depreciation (how quickly your car loses value) and how your loan is structured:
- Cars lose value fast: especially in the first 2–3 years.
- Loan balances reduce slowly at first: early repayments are mostly interest, so the outstanding balance falls slower than the car’s value. A balloon or longer repayment term also keeps that balance higher for longer.
- You can owe more than the car is worth from day one: initiation or admin fees or other add-ons like a tracker can make your opening loan balance higher than the car’s value, leaving you with a shortfall from day one.
- How the insurer values the car matters: payouts are based on retail, market or trade value. Market/trade are lower, which makes a gap more likely.
In short: your loan can stay higher than the car’s value, especially early on, so even a fair payout can leave a shortfall.
Who needs shortfall cover?
You may need shortfall cover if any of these apply:
- You chose a balloon payment to reduce monthly instalments.
- You paid little or no deposit when you bought your car.
- Your repayment term is five years or longer.
- You’re leasing your car.
- You bought a brand-new car (fastest depreciation).
- Your insurer covers you at market value or trade value.
- You’re in the first 24 months of your loan (car depreciation is sharpest here).
- You have a high interest rate on your loan.
If you bought your car cash or could comfortably settle any gap, then you probably don’t need shortfall cover.
What are the benefits of shortfall cover?
- Protects you from paying off a car you can no longer use.
- Confidence when buying new cars with balloon payments or long loans.
- Affordable add-on to your comprehensive car insurance.
- Keeps your credit record safe — no risk of defaulting on the bank loan.
What is not included in shortfall cover?
- It doesn’t cover overdue instalments or arrears.
- It doesn’t cover extras not financed through the bank (like aftermarket rims or sound systems).
- It won’t pay for repair costs – that’s what comprehensive insurance is for.
FAQs about shortfall cover
What is shortfall insurance?
Shortfall insurance, also known as gap cover or credit shortfall cover, bridges the gap between what your insurer pays out and what you owe the bank.
Does credit shortfall cover balloon payments?
Yes, shortfall cover pays the gap between what you need to settle with the finance house (including any balloon or residual) and what your insurer pays if the car is written off or stolen. It’s especially important if you have a balloon payment because without it, you could be left with a large debt on a car you no longer have.
What is vehicle shortfall insurance vs gap cover?
They’re different names for the same thing. Both protect you against loan shortfalls after a total loss.
Do I need shortfall cover if I paid a deposit?
It depends on the size of your deposit. A deposit of 20% or more usually reduces your risk of a shortfall, but if your loan term is long or you have a balloon payment, you may still need cover.
Is shortfall cover expensive?
No. It’s usually a small monthly add-on to your car insurance premium — and far cheaper than paying off a shortfall loan yourself.
