Do You Need Gap Insurance Protection For Your Car Loan
Gap insurance is vital in this market, given the credit crisis and the number of people that have found themselves upside down or in a negative equity situation on their car loan. If the value of your car is lower than your auto loan your insurance policy may not cover you in the event of an accident.
Gap insurance is a protection that was created to cover the balance from the amount of the loan from the value of the car in the event the car is stolen or right-off. Gap insurance can be referred to as debt cancellation agreement or a waiver on the remainder of your car loan in the event of a right-off or thief.
Being obligated to pay for an auto loan even if you do not have access to the vehicle is a pain to the car buyer.
Let’s assume that you were one of the unfortunate victims of the recent flood in Nashville. You are covered with sludge and mud and the verdict from the mechanic at your car dealer is “this car is totaled.” let’s further assume that you, like the 94% of other Americans, purchase your car through financing.
If , for example, your loan is $24,500 and you have only paid down $8,500 so far. If you had Gap Insurance you will not have to worry about the additional $16,000 to pay.
Car buyers who do not have enough money to put a sizable amount as down payment on a car loan is advised to opt for gap protection. This will protect them if they were to ever get upside down on the loan. In this case, buyers are advice to calculate the amount of expected depreciation on the car. Some cars lose value quicker than others. Buyers should check NADA guides, Kelly Blue Book, edmunds.com for information on vehicle depreciation rates.
If you are buying a car and you have bad credit or your down payment is low, it is very likely that the lender will include gap insurance to your monthly payments. Even lenders dealing with car lease usually add gap as part of the leasing agreement.
Gap protection can be done through the dealership financing arm or it can be down through your insurance agent. However, not all insurance companies offer gap and every state has its own laws on how gap protection in managed. Before you check with your insurance agent, check your auto loan agreement to see whether gap has not already been added to your monthly payments. Keep in mind that the cost of gap is tied into the cost of the car. The higher the price of the car the higher the gap.
The average price of gap insurance through auto dealership is roughly $500, but through your insurance company, bank or credit union you could purchase gap protection for as low as $200