If you have a loan on your vehicle, you are likely required to carry a full-coverage insurance policy. In the event of a loss, including an accident or theft, your insurance company pays the market value of the car to your lender. For people who owe more than their car is worth, gap insurance is available, which covers the 'gap' between your vehicle's value and your loan amount.
Warnings
If you just took a loan for a brand-new car and didn't put money down, you are likely upside-down in your car loan. While your insurance company would pay the vehicle's market value toward your loan, you still may owe $6,000 to your lender. You can expect to continue making payments until the car is paid off, as you promised in your contract. Additionally, because you still have an active car loan on your credit report, you may find you can't obtain financing for another car until the old balance is satisfied.
Benefits
In the same scenario, your gap insurance would pay for the remaining balance due to your lender so you don't have to pay. On average, a new car bought at or close to invoice pricing maintains only 81 percent of its value at the end of one year. Rather than make the payments yourself, gap insurance takes care of the rest, allowing you to save money rather than spend it for a car you no longer own. Additionally, you can start car shopping again once the loan is satisfied, instead of remaining without a car until the loan is paid in full.
Shopping for Coverage
Gap insurance is not terribly expensive, depending on where you buy it. Some dealers may charge $100 for the extra coverage while some charge over $500. Your loan provider or insurance company may also offer gap insurance. Be sure to check with your loan provider to find out if gap insurance is included with your loan or how much it costs to purchase it directly from them. Insurance providers may also offer the coverage at a discounted rate. Make gap Insurance part of your shopping price criteria if you need it, as dealers mark up the cost for profit.
When to Buy
Purchase gap insurance coverage if you owe more than your car is worth. Use appraisal websites to determine your vehicle's market value, such as Edmunds.com or Kelley Blue Book, before you complete your paperwork. When you check values, input your vehicle as a used car with 15,000 miles more (or how ever many you drive in a year) on the odometer than you have now to gauge value differences. If your loan amount is less than this, you probably do not need gap insurance. If it is higher, purchase the policy to protect your funds.
0 comments:
Post a Comment