If you're considering an automobile purchase, you may have already estimated how much you can afford for a car. But, here's something you may have not considered yet: have you determined how much you can afford for your car insurance? If your current vehicle only has liability and property coverage (commonly known as PL/PD), you will need to factor in a higher premium, because that next car will need to have full coverage.
Full insurance coverage includes two additional types of coverage: Comprehensive and Collision.
- Comprehensive covers things such as theft, vandalism and fire damage. In other words, it covers incidents that have nothing to do with hitting another vehicle.
- Collision will cover damage to your car in the event of an accident, even if the other driver is uninsured or you are at fault.
So, when you take out a car loan, the lender will want to ensure that they recoup as much of their investment as possible in the event the vehicle is totaled. In order to do this, they will require you to have full insurance coverage on the car for the length of the loan term.
More to Consider
Even with full coverage, insurance agencies will only cover the value of the car at the time of the accident, not the amount you paid for it. This means that you will still have to pay the remainder of the loan yourself if the car was valued at less than it was when you purchased it. Because of depreciation, it is very likely that this will be the case.
Now, there are a couple ways to ensure that you won't have this deficit. The first is to put up a strong down payment that covers at least 20 to 25 percent of the vehicle price. The second is to purchase GAP insurance. This type of insurance will cover the remaining loan balance after your insurance company pays for the current value of the car in the event of a total loss.
GAP insurance is fairly easy to get, and typically can be purchased either from the car dealership you are working with or from a third party.
Be Ready to Make the Change
At Auto Credit Express, we want you to be as prepared as possible for your next auto loan. And part of that preparedness comes from having all of the additional costs of ownership in order. The other part is knowing that you are working with the right dealer who has your best interests in mind.
We have a nationwide dealership network, and have helped millions find the dealers that could work with their unique financial situations. We can do the same for you. Once you have completed our fast, free and secure online application, we will connect you with a nearby dealership that can work with you. When you need a car, but have damaged credit, we've got you covered.