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What Is Gap Insurance And Do I Need It?

Posted on September 18, 2014 at 4:10 PM

Gap Insurance, what is it and should I have it?

 

 

In most situations these days people trade in their old vehicles to get a new one. Most people owe money on their trade and most likely they owe more money on it than it's worth. In this case you are transferring negative equity from the trade onto the new vehicle. For example you buy a car for $20,000 with taxes included. You trade your vehicle in and you owe $5,000 more than what the dealer is allowing you. This Negative equity is then added into the new loan. So now you owe $25,000 on a car you just purchased for $20,000.

 

You have an accident and the insurance company tells you that it is totaled. Great! Now the insurance company figures the value of the vehicle was 18,000. So they will pay the $18,000 minus your deductable. Say you have a $1,000 deductable. Insurance company cuts a check for $17,000. Guess what, you still have a loan balance of $8,000 and no car.

 

Gap insurance will pay the short fall on the loan so you can then go and get a new vehicle. With out gap insurance you would still have a loan. A bank may not lend you money on a new vehicle until the old loan is satisfied. An extremely bad situation.

 

I would highly recommend getting gap insurance if you are financing with little money down or bringing in negative equity into the deal. Most car dealerships offer gap insurance as well as other products. Their finance manager should go over these options with you if you have them arranging the financing. It only raises your payment by a few dollars per month but is worth it for the peace of mind help protect you finacially.

 

If you purchase a vehicle and either put a lot of money down or otherwise end up in a equity position then you don't need Gap Insurance.

 

Hope this helps. Later

Syd Robinson "Your Car Guy"

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Categories: Finance and auto loans

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3 Comments

Reply Teresa
3:51 PM on April 17, 2017 
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Reply Teresa
3:47 PM on April 17, 2017 
Teresa says...
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Reply Teresa
3:45 PM on April 17, 2017 
I needed to thank you for this great read!! I definitely enjoyed every bit of it. I've got you bookmarked to look at new things you post?
guide to buy best auto insurance deal