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4 reasons car insurance is a cost worth paying
When you take out a loan to buy a new or used car, here’s why you need insurance.
Let’s face it, paying car insurance hardly ever feels like money well spent, when you think of all the nicer alternatives you could spend that money on. However, that attitude will only last until you have a car disaster. If you’re ever in an accident or lose your car to theft or fire, the money you pay on insurance every month will instantly become worth the expense.
It doesn’t matter how well-trained you are as a driver, or how carefully you drive. You cannot control how other people drive, or whether they have insurance to cover any damage they do to your car if they cause an accident. According to the Automobile Association, between 65% and 70% of the 1.14 million registered vehicles on South African roads are uninsured.
It’s human nature to believe that it won’t happen to you – until it happens. Losing something as costly and useful as your car will change your tune.
Not spending money on insurance every month could leave you with a long-lasting financial burden in 4 ways:
1. A car loan, without the car
Even if you have lost your car due to an accident, fire or theft, you still need to pay off that loan you took to buy your car. You may not have the car anymore, but you still have to settle the debt. That’s why you’re required to take out comprehensive insurance on your car when you get financing from MFC, a division of Nedbank. It may feel like an unfair condition, but at the end of the day it’s in your best interests.
2. A drain on your cash flow
Being stranded without your car is a major problem on top of the loan obligation. Public transport can be costly, time-consuming and even hazardous, so you could find yourself stranded or having to find more reliable ways to get around that are even more expensive.
You can guard against all 4 of these pitfalls by properly insuring your car
You will have to adjust your budget, making cuts and even lifestyle sacrifices to afford alternative transport on top of your usual loan repayments. Those who can’t cut expenses may have to rely on going into more debt, which is not ideal.
3. A burden on your loved ones
In a worst-case scenario, an accident might cost you your life as well as your car, so your family and the executor of your estate will have to deal with the consequences. It’s irresponsible and unfair to leave them coping with financial fallout as an additional burden during a time of grief.
If your car was insured, your beneficiaries will receive a payout to cover some, if not all, of the remaining amount on your car loan. You can ensure that the full amount is settled by taking out additional credit shortfall insurance, which covers any difference between the claim that’s paid and the outstanding loan amount.
Doing so will give you the comfort that you’ve done all you can to reduce the burden on your family and your estate, should the worst happen.
4. A negative effect on your creditworthiness
Another unintended consequence of not insuring a car on which you still owe money is that you may struggle to get a loan for another vehicle. If you’re still paying off the original loan and you don’t have enough disposable income, you might fall below the affordability limit to qualify for more vehicle finance. It can also affect your credit profile, making it even more difficult to get other forms of credit.
All in all, it’s a predicament you really want to avoid. And you can guard against all 4 of these pitfalls by properly insuring your car.
Did you know that if you take out MFC vehicle finance and open a Nedbank Savvy Plus or Savvy Bundle Account, you can get R200 a month cash back for the duration of your loan? For an affordable car loan tailored to your circumstances and value-added extras like cash back, choose the bank that’s best for your money.
