Automobile gap insurance might be a good idea especially for consumers with problem credit who need an auto loan after completing a bankruptcy
What we know
For car buyers with questionable credit there are a number of situations in which the protection provided by car gap insurance for an auto loan makes sense.
At Auto Credit Express we've seen how important this coverage can be because for more than twenty years we've been helping car buyers with bad credit find those dealers that can give them their best opportunities for auto loan approvals.
Automobile gap insurance
To begin with, we need to point out that gap insurance is never a requirement in order for someone to qualify for a high-risk car loan. And while car buyers shouldn't believe anyone who tries to tell them it is, we also believe there are situations in which this type of insurance coverage can be worth the cost.
There are a couple of reasons we feel this way:
• Until it's paid off any vehicle being financed belongs to the lender
• If you're involved in any accident other than a total loss, full coverage car insurance (required by the lender) will pay to repair any damage, less the deductible.
• In most cases, auto insurance only pays the cash value of a vehicle in the event of a total loss.
So if you're involved in an accident where the car is a total loss and the insurance company pays its current cash value (possibly less a deductible), what's the problem?
The problem is that depending on when the accident occurs during the loan term, the payout from the insurance settlement could be thousands of dollars less than the current loan payoff amount.
If this happens, the lender will receive the insurance settlement but write off the rest of the loan. In fact, payments must continue until the remaining balance is paid in full – unless, that is, the loan contract is covered by car gap insurance.
In this case if you have this type of coverage, the insurance company will pay the lender the difference between the insurance settlement and the balance owed on the loan (less any deductible – although if you weren't at fault, in many states your auto insurance may cover this as well).
Car gap insurance buying tips
Car buyers should consider automobile gap insurance if:
• The loan term is over 60 months (possibly even 48 months if you're financing a new car with high depreciation)
• Your total down payment (after deducting any negative equity on your trade-in) is less than 20%
• You drive more than 15,000 miles per year (this increases the rate of depreciation)
Another thing: buying gap insurance from the selling dealer is convenient because this means its cost can be rolled into your car payment. But be sure to shop around first because this coverage is also available from many car insurance providers.
The Bottom Line
There are at least three instances where car gap insurance makes sense for post bankruptcy auto loans – when the annual mileage is above average, when the finance term is over 60 months and when the total down payment is less than 20 percent. In all three cases, automobile gap insurance could help you avoid paying anywhere from hundreds to thousands of dollars for a vehicle that's been declared a total loss.
One more thing: Auto Credit Express specializes in helping applicants with bad credit find those dealers that can give them their best chances for approved auto loans.
So if you're ready to reestablish your car credit, you can begin now by filling out our online auto loans application.
