Credit Shortfall (Gap) Cover Explained

If your financed car is stolen or written off, your insurer pays out the car's value at that moment, but you may still owe the bank more than that. Credit shortfall cover, often called gap cover, pays that difference so you are not left paying off a car you no longer have. Here is how it works and when you need it.

What is credit shortfall (gap) cover?

It is an add-on that covers the gap between your car insurance payout and the amount you still owe on your finance agreement if the car is written off or stolen. Comprehensive insurance pays the car's value at the time of loss; credit shortfall cover pays the shortfall between that payout and your outstanding balance.

Why would there be a shortfall?

Because a financed car often loses value faster than the loan reduces, especially in the early years. You can owe more than the car is worth, particularly with a small deposit, a long repayment term, or a balloon payment. If it is written off then, the insurance payout may not clear the finance, leaving you owing the difference on a car you no longer have.

Who needs credit shortfall cover?

Mainly people with a financed car, especially with a low deposit, a long term or a balloon payment, where the shortfall risk is highest. If you paid cash or owe less than the car is worth, you generally do not need it. See our guide on car insurance for financed cars.

How much does gap cover pay?

It pays the shortfall up to the limits set out in the gap policy, and depending on the product it can also include items like your excess or a portion of extras. Limits and exclusions vary between providers, so check exactly what a specific gap policy covers and where it caps out before you rely on it.

Is gap cover the same as the insurance payout?

No. Your comprehensive insurer pays the retail, market or trade value of the car at the time of loss. Gap cover is a separate top-up that only pays the difference between that payout and your finance balance. You need the underlying comprehensive cover first; gap cover sits on top of it.

The bottom line

If you finance a car, credit shortfall (gap) cover protects you from still owing the bank after a write-off or theft. It is inexpensive relative to the risk on a highly-financed car, so weigh your deposit, term and balloon to decide whether you need it. Compare cover.

Cover depends on your policy schedule and wording, and Savvy Insurance is a comparison service. Always refer to your own policy documents for exactly what is and is not covered.

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