A car loan usually comes with two separate insurance questions: insuring the car, and possibly insuring the debt. Under the National Credit Act a lender may require insurance against damage or loss of the car, capped at what you owe, and may require credit life insurance. At lenders such as MFC (Nedbank), the car must carry comprehensive insurance for the finance term.
These are car loan insurance requirements set by the lender in your credit agreement, so what you need depends on who is financing the vehicle.
Eligibility Requirements at a Glance
- Vehicle insurance. Section 106(1) lets a lender require cover against damage or loss of the car, not above your outstanding obligations at any point. MFC states you must have comprehensive insurance for third-party claims, loss and damage during the agreement.
- Lender’s interest noted. MFC requires written confirmation, with evidence that its interests are noted in the policy, before delivery.
- Credit life insurance, if the lender insists. WesBank says lenders may insist on it. It protects the debt on death, disability or retrenchment. It is not an automatic requirement of every lender.
- A valid South African driver’s licence. WesBank notes you can only buy a vehicle with one, and that driving unlicensed invalidates insurance.
Income and Affordability Requirements
Insurance adds to the monthly cost of the loan. The Act says a lender must not offer or demand insurance that is unreasonable or at an unreasonable cost. When the lender arranges the policy, the premium may not exceed the actual cost, and the cost and commission must be disclosed to you. Ask for each premium quoted separately from the instalment.
Keep the two products apart when you compare. Vehicle insurance deals with damage, theft or loss of the car, while credit life deals with the debt if you die, become disabled or are retrenched. The National Credit Regulator’s consumer booklet notes that credit insurance only covers the outstanding balance, so on a write-off you receive nothing for the car’s value unless you insure it for its full market value.
Credit and Financial Requirements
Credit life insurance is regulated by the Credit Life Insurance Regulations. The National Credit Regulator’s guideline on the regulations says they deal with the maximum prescribed cost, exclusions and limitations of cover, extra benefits and substitution of credit life policies. Read the exclusions in your policy, particularly on retrenchment, before you rely on it.
If the lender proposes a particular policy, you must be told you may waive it and substitute one of your own choice (section 106(4)(a), subject to section 106(6)). The lender may still reject cover that does not meet its terms.
Documents and Verification Required
- Proof of your vehicle insurance, with evidence that the lender’s interest is noted. MFC asks for this before delivery.
- Your credit life policy details, if you arrange your own instead of the lender’s.
- A valid South African driver’s licence.
- Proof of current comprehensive insurance. MFC lists this among the documents it needs to release a vehicle from storage.
How to Apply and Improve Approval Readiness
- Ask the lender in writing which insurance the agreement requires, and whether credit life is demanded.
- Get your own quotes. MFC says you may obtain your own insurance, use a dealership quotation, or arrange cover through Nedbank Group Insurance (0800 333 111).
- Check how the lender handles lapses. Under MFC’s MFC terms and conditions, a lapsed policy is a material breach, and MFC may pay premiums and recover them with admin charges and interest.
- Keep your policy schedules together with the finance agreement.
Frequently Asked Questions
Do I have to take the lender’s insurance?
No, if the lender proposes a policy you must be told you may waive it and substitute your own (subject to section 106(6)). MFC says you may obtain your own insurance. The lender can still reject cover that does not meet its terms.
Do car loans require comprehensive insurance?
It depends on the lender. MFC requires it for the finance term. The Act itself only lets a lender require insurance against damage or loss up to your outstanding balance. Check your agreement.
Is credit life insurance compulsory on a car loan?
Not automatically. WesBank says lenders may insist on it, so it depends on the lender and your agreement. Ask whether it is required and whether you may substitute your own policy.
Does credit life cover accident damage?
No. It protects the debt on death, disability or retrenchment. Damage and theft are dealt with by vehicle insurance.
Confirm exactly what your agreement requires with your lender, and see finance and funding requirements and browse all loan requirements.