Bad Credit Blues

Should You Buy Gap Insurance?

First you need to understand what GAP insurance is, and also how your regular auto insurance works. If you wreck your car, and an isurer decides it is a total loss, they will only pay you what they determine your vehicle is worth. Oh, you may be able to argue and get slightly more favorable terms, but you are not likely to be able to budge them that much. After all, they are an insurance company, and they pay you for damages. The way they consider those damages, it means they pay for the value of the vehicle, and NOT how much you owe on your auto loan.

These days, a lot of us our extending our loan payoff dates over 4, 5, or even 7 years to reduce payments. A lot of auto buyers also take advantage of low down payment offers. In addition, we may roll the loan on another vehicle into our new vehicle, maning we start off with a loan that is much larger than the value of the car.

Is that it? No, there are other factors that may increase you debt. You may have rolled your sales taxes and extended warranty into your loan. You may have even rolled the GAP insurace in. Sure, you can cancel the warranty and gap insurance if you total your vehicle, but your previous payments will still have had to cover all of those extra expenses.

So, is GAP  insurance a good deal?

Well it, unlike your regular coverage, actually pays off the difference between the value of your vehicle and the loan amount. So if you drove you new car off the lot, it probably depreciated about 20% at the first intersection. So consider that $30,000 note. Even if just consider depreciation, your car is probably worth at least $6,000 less than the note. A total loss could be a big financial problem because you are still responsible for the entire debt. The lender does not care how much your insurer will pay off. They care about getting that loan paid off!

You can usually purchase this coverage from the dealer. Sometimes a finance company may even require it in order to approve a loan. I have also seen it online, and it may be cheaper to buy it that way.