When you finance a vehicle, you may think that you are completely covered for your loan through the full coverage insurance policy you are required to have. The truth of the matter is, however, you are not. This is where "Gap Insurance" comes in.
"Gap" stands for Guaranteed Auto Protection. If your new car, truck, van or SUV is stolen or totaled in an accident, your insurance company will only pay for the current market value of the vehicle. This means that you could potentially still owe thousands on a car you can no longer drive. When you purchase Gap Insurance, it will cover the difference between the loan amount and the fair market value of the vehicle.
Why Is Gap Insurance Important?
All cars depreciate in value over time; this is a fairly well known fact. But what isn't as well known is that new cars lose almost a quarter of their value in the first year of ownership. That means that without any kind of down payment, the car you paid $18,000 for is only worth $14,400 after one year. Without Gap Insurance, you run the very high risk that you will still owe money to the lender even after your insurance company has paid out the claim on the vehicle.
Now, if you put a down payment of 20% or more towards your car purchase, chances are you won't need this additional insurance. But if you bought or are planning to buy a car with a minimal or no down payment, I would strongly recommend getting the additional coverage.
- What If I'm Leasing?
Even if you are leasing, Gap coverage is still important. The same rules as those of financing a purchase apply. Most times, a lease contract will have the Gap coverage included in it. Check your agreement for more details.
- Where Can I Get Coverage?
Gap Insurance can either be obtained at the dealership at the time of purchase, or directly from an insurance company. In the event that you don't purchase it from the dealership, you can buy it afterwards.
- Do I Get a Refund If I Don't Use It?
If you pay off your car early, or if the coverage was rolled into the payment, you may be entitled to a refund of the unused portion of the coverage. Once again, don't assume anything and check with your provider for full details.
Don't Get Stuck Holding the Bag
At the end of the day, you don't want to get stuck paying for something you don't have anymore. And if you're ready to make an informed car purchase, Auto Credit Express is here to help. Getting started is easy - just fill out the fast and simple online application We work with dealers who specialize in financing those who have been in past financial mishaps, and we will do everything possible to get you into the car you need.