Does Taking Gap Coverage Make Sense in My Auto Loan?
If you are planning on leasing or buying a new vehicle, then this article is for you. Here we talk about a topic that is often over-looked by un-informed buyers yet is an integral part of your vehicle buying experience.
It is mandated by law that you purchase insurance for your vehicle before you can legally drive it. Your car insurance will protect your car for any accidental damage that may have occurred. At the same time, you are a premium paying customer of the company. You may think other than insurance premiums, what additional mandatory costs might there be for you to insure yourself against probable losses.
If you are an informed buyer, you must have heard about gap insurance. But, do you know what gap insurance is all about or how can you help save money without being an added expense to your vehicle purchasing cost.
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What Is Gap Insurance?
This is a guaranteed program aimed at consumers who might find it challenging to pay off auto loans should their car be stolen or should there be any damage where the consumer will lose all the money invested in purchasing the car. Be aware that if and when your vehicle encounters a significant accident, your insurance company will not cover the money that you have paid to purchase the car. Instead, your insurance company will use the market value or vehicle equity of your car and pay you a comparable amount. Your down payment while purchasing the vehicle will also determine how much you owe the lender. As a prospective car buyer, you will be aware that your car depreciates a lot faster than you would imagine. Taking all these factors into consideration, purchasing gap insurance would be a safe bet for you.
Consider this example:
You purchase a car and pay all the taxes and other necessary expenses, minus the down payment you owe your lender $45,000. You use the car for two years, after which your car, for some reason, becomes almost useless. Your vehicle is now only worth $39,000. After two years of payment, supposing you still owe your lender $33,000. Your gap insurance coverage will help you cover the difference of $6,000.
When Do You Know That You Need Gap Insurance?
- Gap Insurance should be considered if you are leasing your car. The insurance that you purchase when you lease the car will not cover the entire cost of damage should there be one.
- Your vehicle type is known to depreciate quicker
- If your auto loan payoff period is five years and above. This applies to any long term car loan.
- If your down payment at the time of purchase is less than 20% of the entire cost of your car.
- If you are aware that you do not have cash to pay off the deficit that might occur at any time in the future.
- If you plan on driving the car a lot, miles play an essential role in calculating the depreciation value of the vehicle.
Where Can You Get Gap Insurance?
You can get your gap insurance for your vehicle when you first purchase the car. Your dealer will have options to hook you up with a good deal. Please note that you can get a gap insurance post-purchase of your vehicle. Gap Insurance is not mandated for you to be able to drive your car. Some auto insurance providers also include gap insurance as part of bundle offers. You need to have proof to show that you are the original owner of the car. A few of the insurance companies might charge you a flat fee. The average cost of gap insurance is close to 5% of the annual insurance that you are currently paying for your car.
Along with gap coverage, you would also be required to subscribe to collision and comprehensive coverage. The premium amount will depend on the type of car that you drive, the model of the vehicle, your location as well as your driving history. It is good to remember that purchasing or leasing a new or close to new version of the car might help you pay less insurance premium.
There are numerous auto insurance providers who would be happy to help you with gap insurance. If you do a little bit of research on your part, you will be able to get a good deal on the annual premium that you would be required to pay to the insurance provider. All you need to know is the average depreciation value of the type of car and model that you intend to purchase and the amount of down payment that you wish to put down when you buy the car.
Still Wondering If Gap Insurance Is Worth It?
Gap Insurance is a safe bet if you do not want a sudden financial burden due to damage to your vehicle. If you notice, the one-time premium that you are required to pay for the gap insurance is much less compared to the amount that you may have to shell out otherwise. It is a safe investment for stressful events like when your car is stolen or is completely damaged. Would you want to part with your savings on a vehicle that you probably would not be able to use in the future due to an accident?
Gap Insurance – the Real Deal
If you have paid all cash for your vehicle, then you can ignore getting gap insurance. If you are someone who pays a low down payment while purchasing the car, then you should opt for gap insurance without giving it a second thought. Gap Insurance is your savings account’s friend. Please be aware that gap insurance is must-have insurance if you are not purchasing the car with cash. You can find attractive gap insurance policies not just from your regular auto insurance agents but also from your financing banks and even the dealer from whom you purchase the vehicle. The longer your auto loan payoff period, the more critical and wiser it gets for you to subscribe to gap insurance.
Quick Tips on Gap Insurance:
Make sure to read your car insurance policy in detail. There are few insurance companies that offer you gap insurance as part of the entire insurance policy. You do not want to pay for coverage twice. It is proven that the meager cost of getting the gap insurance is nothing compared to the amount of financial coverage it can provide you should there be a total loss of your vehicle.