Gap insurance can save you money if your car becomes a total loss and your insurance company doesn't cover your loan balance. Without gap insurance, you would have to pay the remaining balance of your loan, even though you don't have the car anymore. Purchasing the policy may not be optional; some lenders or leasing banks require it as a condition of loan approval.
When You Owe More than Your Car is Worth
Because gap insurance covers the balance of your loan when an insurance payoff does not, you should purchase the policy if your car loan is upside down -- that is, when the car's loan balance is more than the vehicle's market value. Check the value of your car at Edmunds or Kelley Blue Book websites to determine whether your loan amount is more than the car's value. If you finance other items involved with the car purchase with your loan, such as your taxes, a warranty or other aftermarket items, you likely will be in a negative equity position and may benefit from purchasing gap insurance.
When You Lease
Many leasing banks require gap insurance on leased vehicles. Leasing payments are lower than a comparable finance, as the car's value is paid slowly. If you total the vehicle or it becomes a total loss, its market-value payoff is unlikely to cover the bank's loss. Also, many people fail to negotiate pricing for leased vehicles, which the leasing bank purchases from the dealer to lease to you. If you lease a car, you may want to purchase gap insurance, even if the purchase is optional. Otherwise, you would have to pay the leasing bank for its total loss, not just the lease amount.
When Your Lender Requires It
Your auto loan provider can require that you purchase gap insurance. You may have the opportunity to shop elsewhere, but most lenders require that you purchase from them. The requirement is most common for high interest rate loans, such as those through subprime lenders. Interest rates can soar as high as 29 percent in some states. Because you'll pay so much money toward interest, it takes longer to create vehicle equity. Therefore, your lender can require that you purchase gap insurance so it doesn't lose money if your vehicle becomes a loss.
Price Considerations
If you determine you need or want gap insurance, shop around among providers to find the cheapest policy. Some states cap the cost of gap insurance, so it may only cost $100 to purchase. In states that don't cap the cost, your provider can charge as much as it wants to make a profit. Prices can exceed $600. Check prices from your dealership, insurance provider or with the lender providing your auto loan.
0 comments:
Post a Comment