Short fall


Short fall is a term used to describe the difference between the amount of money owed on a finance agreement, and the amount of money your car insurer will pay if there is an accident or vehicle write-off.


Why can short fall happen?

The way a car’s value is calculated in a finance package can differ from how a car is valued by an insurance company. While this difference should not be that big normally, there are occasions where you could find yourself losing your car and having to pay a large sum of money to settle your finance agreement.


How can I stop short fall from happening?

To prepare yourself for the possibility of a short fall, you can take out a specialist type of insurance that will pay for any difference in value between the insurance pay out and the outstanding balance of the finance package. This is called GAP insurance.


How do I choose the right GAP insurance?

When you apply for a car finance deal, you will likely be offered some GAP insurance as an add-on to the overall financial package. The provider will give you a quote for the total cost of the insurance across the entire package, and any terms and conditions that apply as part of that protection. You can also look for GAP insurance yourself at a comparison website or with an insurance provider who already provides you with an insurance product.


Do I need GAP insurance?

It’s always a good idea to have some sort of protection in case the worst happens. If you were to have a short fall on your car finance package, you could be faced with a very large outstanding balance that you will have to pay for. Not only that, but you will also have lost the car that you used the finance to purchase in the first place, meaning you will have to find money to pay for something that you can no longer use. If you are on a lease purchase or PCP deal, you may also lose the money you receive from the insurance company too.

GAP insurance provides some level of comfort knowing that, if the worst happens, you won’t have to worry about getting some money together to pay for the finance package. While this might mean an additional monthly cost, unless you have a huge lump sum of money available to you at all times, then this cost will negate any problems caused by a short fall.


Will a short fall affect my credit rating?

A short fall itself won’t affect your credit rating, as this is caused by something out of your control like a vehicle accident and then a write-off. But if you are unable to pay the outstanding balance on the car finance agreement, i.e. the short fall, then it will negatively affect your credit rating. It will count as a default, even though the product you are financing is no longer available to you to use. So be careful when it comes to deciding on whether you need any extra protection.

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