Chance are good that are when you purchased your new vehicle, the dealership offered you, along with extended warranties, sealants and other extras, gap insurance or “guaranteed asset protection” to protect you from your cars value depreciating lower than your vehicle’s loan balance. GAP insurance may be good idea to purchase it if you don’t make a big down payment and the thought of making payments on a vehicle that was totaled would make you cringe.
It is not uncommon for a vehicle to depreciate by 40% the first two years of ownership and most of that is in the first months of ownership. If your vehicle cost you $50,000 and a few months later you have an accident and it is totaled. For ease of illustration – let’s say your vehicle fair market value is now 40,000 and you owe $48,000. You will be on the hook for $8,000. The loan company will want their money. It’s the old paying for a dead horse scenario.
If you leased a vehicle it was most likely required or factored into the lease. It was added in to protect their asset.
Here are the big tips: If you don’t put down a large down payment and/or you don’t want to take the risk of losing the difference between loan value and market value – you should purchase it.
If you decide GAP insurance is a good idea – get it from your current auto insurance agent. It will most likely be significantly less. Do it right away as it may not be possible to do it later. Some companies only allow it at the time of purchase or for a limited time after.
The dealership’s finance person will most likely put the hard sell on you and tell you want it you must purchase right then and there or not at all. They don’t want you contacting your agent, getting advice, and comparing.
If you are a sharp shopper you should tell the finance person thanks, but no thanks. Your insurance agent can add it to your policy – probably for less than half – and if you want to drop it after two or three years you can take it off your policy. It’ll be easier It would be best to call your agent before hand just to make sure your company offers it. There are, although not many, a few companies that do not offer it.
Many people have been purchasing GAP insurance from the dealer at the time of purchase. It can be an emotional and exciting time. Hey – you’re getting a new vehicle and it’s a happy fun time. However, it is easy to get caught into buying the insurance and paying double to protect your new asset. People will buy more when they are excited and in the buying mode. Call your agent and see what it would cost. Use the money saved for extra payments or some new accessories.
This article was written to inform and save you some money. Stay aware. Take a few minutes and do the math. You will be quite surprised how much you will save. It will probably be around two vehicle payments.
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