by Christina Briggs
Gap insurance is a must have when financing a vehicle. I had personally never heard of gap insurance before working at a car dealership, and I will never loan money for a vehicle without it! After reading this article, I’m sure you will feel the same. Gap insurance will save the car of your dreams from becoming your worst nightmare.
So what is gap insurance and why is it such a great idea? Quite frankly, your car is only worth what someone is willing to pay for it and when it comes to accidents or theft, Insurance companies aren’t rushing to hand out thousands of dollars to pay off your lease or loan. Gap insurance protects you, the consumer, by paying off the difference between what the insurance company values your car at, and what you really owe. It’s simple, really. A small investment (approximately $500 - $600, depending upon which state you do business in) could save you thousands of dollars.
Let’s visit a scenario: Say you purchase a car for $25,000 and begin making your $500 payments at 6% interest. Then your brand new car is stolen! You call your insurance company, and the adjuster researches the area’s auto auctions searching for the ‘value’ of your car. Auto auctions typically are overflowed with rental company cars that severely bring down the value of vehicles across the country. The adjuster determines that your vehicle is only worth $20,000. The car may only be a couple of months old, but cars will lose 20% to 30% of their value before you even drive it off the lot.
Unfortunately the finance company still wants the full amount you owe them. With interest, tax and license fees they figure that to be $27,000. This is where gap insurance saves the day. Your $500 investment you made a couple of months ago just saved you from having to pay $7000 for something that is not there anymore. Some gap insurance policies even cut you a check for up to $1000 to use as a down payment for your next car. These reasons are why gap insurance is a MUST!
All this protection for a small price! So, why do most people not have this protection on their vehicle loan? It’s a simple lack of knowledge. Be an informed buyer and ask questions. If your car is totaled or stolen, carefully follow all requirements made by your auto insurance company. For example, some companies require you to continue making car payments on your totaled vehicle until the money from the gap insurance is paid out.
So when considering a new or used car purchase, always remember to ask your loan officer or salesperson about gap insurance. If you have an accident, your vehicle is stolen, or a tree flattens your car, you'll be glad you planned ahead. As stated before, gap insurance could save the car of your dreams from becoming your worst nightmare.
Special Finance Manager
Jim Fresard Pontiac