Buying a car is a big financial commitment, and for many South Africans, car financing helps make it possible. While getting a car loan can be exciting, it can affect your car insurance costs and requirements.
Let’s break down how car financing works, the impact on your car insurance, and what your options are so you can protect both your car and your finances.
Understanding car financing
When you finance a car, you’re simply borrowing money in the form of a loan to buy a car. You’ll usually sign a contract agreeing to pay back the money in monthly instalments over a few years.
If you’re thinking of financing your car, there are a few basics you need to understand first. Let’s take a look at these.
Credit score
Your credit score impacts whether you can get a loan and how much you’ll end up paying for your car insurance premium. A higher score gets you better interest rates, while a lower score may mean higher premiums and your choice of car options may be limited.
Loan term
The loan term is the time you have to pay off your loan. Longer loan terms mean you’ll pay a lower amount each month, but you’ll end up paying more interest over time.
Balloon payments
Some car loans come with a balloon payment option. This means you’ll have lower monthly payments for a few years, but at the end of the loan, you’ll need to pay off the remaining amount in one big lump sum.
Car insurance for financed cars
When you finance a car, lenders often require comprehensive car insurance to protect their investment. Here’s a quick look at insurance for financed cars.
Comprehensive car insurance
Comprehensive car insurance gives you full coverage against damages to your car and includes protection against theft, and natural disasters. Lenders usually make this type of insurance a must for financed cars.
Credit shortfall cover
If your car is stolen or written off, your insurance payout may not cover what’s left on your loan. However, depending on your policy, credit shortfall insurance could cover part of the amount, saving you from paying the full loan amount yourself.
Extended warranty insurance
Some insurers offer an extended warranty to cover repairs after the manufacturer’s warranty ends. It’s not required by South African law, but some lenders may ask you to take out extended warranty insurance as it offers extra protection over the long term.
How financing affects your car insurance premiums
Financing a car affects your insurance premium in a few ways, so keep the following in mind.
Higher premiums
When you finance a car, lenders want the highest possible coverage to protect the car in case of accidents, theft, or damage. Comprehensive insurance premiums are more expensive than basic liability coverage since it covers more risks.
Insurance companies may also consider your car finance details when calculating your premium. For example, a lower credit score or longer loan term could increase your premium.
When you insure your car with Prime you get fixed premiums for 24 months if you don’t claim for added peace of mind and to help you budget better.
Insurance requirements
Your loan agreement may require you to take out extended warranty insurance and add-ons like hail protection. Not doing this could result in penalties or even losing your loan.
However, you can get valuable extras like roadside assistance or car hire. These are especially useful if you rely on your car for daily transport.
Why you need comprehensive car insurance for your financed car
If you’re financing a car, comprehensive insurance is often required by the lender. Let’s look at why it’s so important.
It gives you peace of mind
Knowing your car is fully covered for accidents or theft gives you confidence when driving, especially while you’re still paying it off. It’s unlike liability insurance, which only covers you for damage you cause to other people’s cars.
It saves you a lot of money
While comprehensive insurance may seem expensive, it can save you thousands in repairs. You also won’t have to dig into your savings when replacing your vehicle after it’s written off or lost.
Get comprehensive coverage for your financed car
Understanding how car financing and insurance coverage work helps you make smart choices that protect your car and your finances. Start by getting a comprehensive car insurance quote, or take a closer look at the types of car insurance and our unique coverage benefits.
Disclaimer
This article provides general information on getting your car financed in South Africa and how it affects your car insurance. Remember to always read each policy carefully before purchasing any car insurance cover.
Buying car insurance should be done with much thought and only from a certified financial services provider.
Contact us today to learn more about getting affordable, comprehensive car insurance with fixed premiums* and a reduce-to-zero excess*. *T&Cs apply
