Gap Insurance and Service Contacts
by Dave LaLonde on Tuesday, August 14th, 2007When you buy and finance a car with bad credit chances are you will be offered additional products during the loan closing process. I would like to take the time now to discuss these and give my recommendation as to whether or not you should purchase and finance these additional products.
There are actually only two products that I feel strongly about and always recommend people with bad credit purchase when financing a car. They are Gap Insurance and a Service Contract (sometimes referred to as a warranty). The reason I feel so strongly about these products is because I seen many people who had good credit end up with bad credit because they did not purchase these products when they financing their last car.
Gap Insurance pays the difference between what you own and what the vehicle is worth in the event the car is stolen or destroyed.
A Service Contract protects against unexpected, costly repairs.
Most Americans live pay check to pay check. When they purchase a car their main concern is the monthly payment. To keep the payment low, most car buyers decide not to purchase Gap Insurance and a Service Contract.
A small percentage of these consumers end up in an accident in which their vehicle is totaled or stolen and never recovered. The insurance company only pays the current value of the vehicle, not the loan payoff amount. When this happens, the consumer is stuck with a bill that they cannot pay. The difference between what you own and what the vehicle is worth is often thousands of dollars and it is due to the lender at the same time the insurance company settles.
Another small percentage of consumers experience unexpected, costly repairs, such as a blown transmission or engine.
Many Americans live pay check to pay check. If you can barely afford a car payment can you afford to pay the balance of your car loan, after the insurance payoff, if it is totaled or stolen? And if you can barely afford a car payment can you afford to make your payments while you are raising money to replace the engine or transmission?
If you have good credit, or are trying to bounce back after bad credit, and are living pay check to pay check, I would recommend that you purchase Gap Insurance and a Service Contract when you finance your next car.
You should expect you payment to increase from $20 to $40 dollars per month by adding theses products, so include them in your budget when calculating the maximum payment that you can afford.
I mentioned earlier that I feel strongly about these products. Following is a list of products I recommend most people avoid. There are a handful of people that would find these products useful but from my experience I have not witnessed the lack of purchasing these products result in turning good credit to bad credit.
- Credit Life Insurance
- Credit Disability Insurance
- Rust, Paint, & Fabric Protection
- Anti Theft Etch
- Pin Striping & Gold Package (converting chrome emblems to gold)
