In car insurance the term financier refers to the bank or other financial institution which provided the finance to someone who purchased a car. A financed car is therefore a car that was bought on credit, not paid for in cash.  When you buy a car on credit the financier will insist on proof that you have taken out comprehensive car insurance. They need this proof to protect their rights to the car – the financier has the right to take the car back if payments on the loan are not made as agreed in the contract.

Should a car be written off in an accident or lost and not recovered, the finance house has the first right to the insurance pay-out. Once the car loan has been settled in full the balance will be refunded to the insured person. Unfortunately, what often transpires is that the insurance pay-out is not sufficient to repay the loan leaving a balance for which the insured person is responsible. This event can take place as the value of cars decrease faster, in many instances, than what the loan balance is reduced by.

Car insurance will pay out at the market value of the car at the time of the loss. To counteract this and ensure that you do not land up in this financial predicament you can take out what is called credit shortfall extension or gap insurance. This insurance will cover the difference between the insurance settlement amount and the balance of the loan. See the Credit Shortfall Extension Glossary entry for further details.