Consumer Car Buying Advice Blog

There are instances when gap insurance makes sense for approved auto loans

In the know

One decision you may have to make regarding bad credit auto loans is whether or not to buy gap insurance.

We’re familiar with this issue because we have been in bad credit car sales for over nineteen years and have helped hundreds of credit-challenged buyers get approved for no credit auto loans here at Auto Credit Express.

This means we help them pass on a tote the note loan and walk them through the problem credit auto loan process to reduce the possibility of repossession (buyers can also fill out our online car loans bad credit application).

In particular, one thing that should be understood is the advantages and disadvantages of gap insurance.

What gap insurance covers

Until the last payment, your car really belongs to lender that offered you horrible credit auto loans. This means that if you get into an accident before it’s paid off, your full coverage insurance will pay for any damage, less your deductible.

It also means that if you’re involved in an accident where the car is declared a total loss, the insurance company will pay its retail value (possibly less the deductible) at the time of the accident.

The problem is, if you’re early enough into a loan with a small down payment, your vehicle could be worth thousands of dollars less that the loan payoff. If this happens, you’ll need to continue to make payments until the remaining balance is paid in full.

Admittedly, this is a worst case scenario, but it can and has happened.

This is where gap insurance pays off: If you have it, the gap insurance company will pay the difference between the amount your auto insurance pays and the balance of your car loan (less any deductible – although if you weren’t at fault, in many states the insurance company will waive that amount).

If and when to buy gap insurance

In many cases, gap insurance can be a waste of money. If you have a short-term loan (36 months or less) you will be in an equity situation with your car loan in a very short time. Also, if your down payment was 20% or more, chances are very good that you will also be in an equity position for all or most of the loan – especially if it is for 60 months or less.

But in just about every other situation, it can make sense to buy gap insurance.

The bottom line

In many situations, a small increase in your monthly payment means you can avoid the chance that you might have to pay thousands of dollars to a lender for a vehicle that’s been damaged beyond repair. You can also avoid defaulting on a loan if this situation would result in your inability to pay the remaining balance.

At Auto Credit Express, we specialize in placing customers with bad credit with dealers that can help them. These dealers are knowledgeable and will give you your best chance at getting approved for a second chance auto loan.

So if you’re serious about getting your car credit back on track, you can begin by filling out our online car loans bad credit application now.

Tags: Bad Credit, bad credit auto loans, gap insurance

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