What is GAP Insurance?
We’ve all heard the proverbial wisdom that the value of your brand new car drops by over 10% the moment you drive it off the dealer’s lot. But who doesn’t want to own a new car? It’s clean and shiny, with not a dust mite in sight. There are no ugly scratches or dings, and some people just can’t get enough of that new car smell. So let’s assume you have just bought a new car.
Once you’ve negotiated your purchase price and car loan and obtained the required state insurance, you probably think you’re good to go. But there is another layer of financial protection that you may not have considered: GAP Insurance. GAP Insurance covers the difference between what you owe the lender and the payout you receive from your insurance company in the event of a serious accident. It is available when you purchase a new car or refinance your old car, to provide another layer of cushion against loss in the event of a serious accident. If you have a collision or theft that leaves your vehicle a total loss (i.e., it costs more to fix the car than the car is worth; it has been lost, stolen, or totaled), the insurance company pay-out may not be enough to cover the amount you still owe on your loan – especially if your loan is long-term and you made a minimal down payment. Should your car be totaled without the benefit of GAP Insurance, you will find yourself owing your bank money you may not have.
For example, if you paid $25,000 for your car with no down payment and it is totaled in an accident, the insurance company may give you a check for only $19,000 – based on the huge depreciation of a new car once it is driven off the lot and considered “used.” Meanwhile, you still owe the bank $25,000 – possibly even a bit more with accrued interest. How are you going to pay the bank the extra $6,000 you owe?
Auto refinancing is another great time to look into GAP Insurance. Often, smart auto financing solutions include GAP Insurance for greater protection when you need it most. The reduction in payments you receive by lowering your interest rate will more than compensate for the cost of the insurance. Also, consider GAP Insurance if you are purchasing a second-hand car; here too, your car depreciates so quickly that the insurance payout may not be enough to cover your bank loan in the event of a collision.
The best part is that a GAP Waiver is very affordable – a lot of times it comes down to just 0.45 cents per day. Often, you can get lower rates directly from finance and insurance companies than from your car dealership. GAP does not have to be purchased at the same time you buy your car, but can be added to your policy through your finance or insurance company at any time – provided that you manage to avoid that total loss scenario!
If you are interested to find out how a GAP Waiver can close the gaping hole in your insurance, give us a call at 866-683-5505. Our expert loan consultants are always here to help you!