GAP INSURANCE

Gap Insurance May Save You Thousands of Dollars

June 28, 2018 by admin 1 Comment

Here’s an unpleasant thought: you buy a new car and within months it’s stolen or totaled following an accident. You believe that your insurance coverage is excellent, but are soon rudely awakened when your finance company sends you a bill for thousands of dollars. Had you chosen gap insurance, your finance company wouldn’t be demanding payment. That is if you knew about such coverage in the first place.

car crash gap insurance — Is your auto insurance sufficient for protecting you against total loss?

What is Gap Coverage?

Gap insurance, also known as gap coverage, pays the difference between what you owe on your vehicle and what your car is worth. Gap coverage is especially important if you do not put enough money down on your new car and its value has slipped below what you owe on it.

For instance, you buy a new car and pay $27,500 for it, putting $2,500 down. You take out a loan for $25,000 and five payments later your outstanding balance falls to $23,500.

Unfortunately, you get into an accident that destroys your car, which soon reveals how vulnerable you really are. You file a claim with your insurer and the insurance company sends your finance company a check for $19,500, representing the value of the car minus your $500 deductible. The difference here is $4,000, an amount that your finance company says that you still owe on the loan.

That gap represents the difference between the loan balance and your insurance payment, monies that you must repay.

Going Upside Down

Many car shoppers are “upside down” or “underwater” with their auto loans, a term that also describes some homeowners.

Typically, borrowers are upside down for two reasons:

1), they do not put enough money down, and

2), the car loses a significant amount of its value within the first few months of ownership.

Indeed, it is not uncommon for a new car to depreciate rapidly with Edmunds.com noting that a new vehicle loses on average 11 percent of its value the moment it drives off the dealer’s lot. Several months later the car’s value may fall by 25 to 30 percent, making it entirely possible that you owe more to your finance company than what your insurer says it is worth.

Gap Protection Coverage

You may not need gap protection if you put 20 percent or more down and your loan term is short, such as for 36 months. Some consumers make the mistake of rolling their related fees and taxes into their loan and perhaps adding extended warranty coverage as well.

One way to make sure that you are not buying a car that will immediately put you underwater is by using an auto loan calculator such as the one that’s available online from Bankrate.com. Then, compare that number with what Kelly Blue Book lists as your vehicle’s depreciation rate.

As long as you owe less for your vehicle than what it is worth, then you are okay.

Buying Gap Insurance

Before you run out to buy gap coverage, you should review your loan purchase agreement as you may already have it. Such coverage is more common if you lease a vehicle than if you were to finance one. In any case, your finance company may have added that coverage with your agreement.

Indeed, some lenders require gap coverage because they know you may find it difficult to settle the difference later on.

Your current insurer may offer gap coverage, a small cost that’s added to your auto insurance bill. Contact your insurer to get a quote for the gap or actual cash value insurance.

Keep in mind that you will still have to pay a deductible and may receive less money if your car has high miles or is in poor condition. You can cancel gap coverage once you determine you are no longer upside down.

Avoid a Financial Catastrophe

Gap coverage may save you from financial calamity, enabling you to get back on your feet quickly. Without such coverage, you may find yourself unable to afford a replacement vehicle, worsening an already serious problem.

See Also — 7 Ways to Trim Car Insurance

Photo credit: La Cara Salma via Wikipedia. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license.

The Typical Fees When Buying a Car

July 14, 2015 by admin Leave a Comment

Ford Fiesta

You have found the car of your dreams, carefully negotiated the final price and are ready to sign the purchase agreement. Pay careful attention here as there are any number of fees, taxes and charges that can drive up your overall cost. Certain expenses, including dealer extras, may be avoided. Here’s what you need to know about the typical fees when buying a car.

1. Destination charge. You usually cannot avoid the destination charge, what represents the cost of transferring a vehicle to the dealership. These costs vary, but typically range from $895 to $1,150, depending on the vehicle. When reviewing your contract, look for secondary charges that may indicate an additional delivery fee. Have that cost struck from your purchase agreement.

2. Title and registration. Fees related to acquiring the title and registering your vehicle with the state cannot be avoided. What you can avoid is doing the paperwork yourself. Let the dealer handle this matter; take note of the documentation fee — the cost of having the dealer handle this step for you. A $100 to $300 charge is within reason.

Hyundai Sonata

3. Sales tax. This will be your greatest “add on” expense when buying any car. Some states calculate the tax based on the final cost of your car. Other states calculate that cost based on your new car’s final cost minus your trade in. In some cases, you may end up paying your state a few thousand dollars in sales tax.

4. Dealer markup. You may have negotiated the best price you could for your new vehicle and feel that you have come out a winner. Then, you look closer at the purchase agreement and see a “dealer markup” charge. That’s an expense a dealer may try to pass on to you, especially for a high-demand vehicle. Contest this fee or at least negotiate for a lowered cost.

5. Advertising charge. Who knew that you might have to pay for an advertising surcharge? Dealer associations may charge the dealership for a local advertising initiative, one that the dealer may pass on to you. You may be able to get this cost removed from your contract, but not always.

Chrysler 300 Limited

6. Dealer preparation. Your dealer may pass on the cost of preparing the car for sale to you. So-called “dealer prep” means removing the protectant and the coverings required to safely transport a new vehicle from the factory to the dealer. This cost should be removed from your contract as manufacturers routinely reimburse dealers for the cost.

7. Disability insurance. Agree only to this type of insurance if you don’t have it through your employer. What it offers is coverage for your car payments while you are unable to work. Chances are you can find this insurance elsewhere for a more reasonable cost.

8. Credit life insurance. If you die, then your survivors can pay off your loan with credit life insurance. It is term life insurance or what expires once you have made your final car payment. Ensure that the coverage is sufficient and inexpensive.

Nissan GT-R

9. Dealer upgrades. There are a number of services and add ons that your dealer will be happy to tack on. For instance, if you request heated seats for a vehicle without them, you will pay that cost. Don’t agree to undercoating, VIN etching, paint sealant or fabric protection. Undercoating is already done at the factory level. The other services you can do yourself and for little cost.

10. Extended warranty. Should or should you not buy an extended warranty? Consider getting one if you plan to keep your car for many years or well beyond the time limit for the bumper to bumper and powertrain warranties. What you should know is that the best warranties are backed by the manufacturer directly or through a third-party source approved by the manufacturer. You also do not need to rush your decision here — you can sign up for a warranty later. Review your contract options and choose the warranty plan that is best for you.

Chevrolet Colorado

Fees and Considerations

If you lease a new vehicle, obtain GAP insurance. GAP or guaranteed auto protection insurance will protect you if your new vehicle is stolen or totaled. It fills in the gap between the vehicle’s residual value and the payments you owe on the vehicle. This is a worthwhile expense that can save you thousands of dollars.

Smart Car Leasing Options For Savvy Consumers

March 24, 2013 by admin 5 Comments

A light blue Volkswagen Beetle cabriolet is in your future or at least you hope it is if you can swing your car payments. Those monthly payments can, however, be reduced if you choose car leasing over traditional loan financing. For when you lease a car, your costs are lower than buying, with the difference here being that you return your leased car at the end of the lease term.

New car leasing also offers some options that you will want to keep in mind as you consider your Volkswagen or other vehicle acquisition. Be a savvy consumer and weigh these options when shopping for a new car.

Money Down

car leasing Like regular bank loan financing, you will need to bring some money with you when you negotiate your lease deal. Even if your deal includes no money down, there are other costs that must be added included dealer fees, registration expenses and taxes.

For starters, your down payment represents your car’s “capitalized cost reduction” or the money that you pay before you begin your lease. It is possible to get this cost rolled into your monthly payments, effectively raising your costs from month to month, while limiting your initial pay out.

Some consumers prefer to make their payments all at once. For example, if you have a 24-month car lease, you can make those payments ahead of time and be done with you financial obligation. This option allows you to operate from a position a strength, where you negotiate the best car deal possible, then make your payment.

Car Leasing Terms

Lease terms are typically for three years or 36 months, but it is possible to lease a car for as little as 12 months or as long as 48 months. Car leasing companies may prefer that you opt for a standard lease contract, but as the customer you can negotiate terms that are right for you.

Keep in mind that the longer your term, the lower your monthly payments. Also, consider that your new car warranty can run out before your lease is done. Therefore, align your lease term with the length of that warranty or be prepared to assume extra costs that can raid your wallet. You can also buy an extended warranty, with that cost rolled into your lease agreement.

Open or Closed

Not too common with consumer car leasing are so-called open-end car leases. Also known as an equity lease, under this arrangement you must purchase the car at the end of lease term. That predetermined amount must be covered in a one-time or balloon payment or you can seek additional financing to cover these costs. With this option, a three-year lease can turn into a four-year used car loan, making for seven long years of car payments.

Most consumers prefer closed-end leases and that is what car leasing companies generally offer. With a closed-end lease, your financial obligation ends when you return your vehicle at lease end. You may still need to pay additional charges for going over the mileage limit or for excess wear and tear, but your car payments end as the lease term comes to a close.

Gap Insurance

Always ask for gap insurance coverage when signing any lease deal. Gap or guaranteed asset protection ensures that if your Volkswagen or other car is totaled or stolen, you are not responsible for future lease payments or a lease deficiency. Never underestimate the importance of such coverage because if your leased car is written off as a total loss, there could be thousands of dollars of lease termination costs to cover. Gap insurance literally fills in the gap between your responsibilities and what the car leasing company says that you owe them, a worthwhile expense to be added to any lease agreement.

What Gap Insurance Is and Why You May Need It

July 12, 2012 by admin 1 Comment

Consumer advice for new car shoppers.

totalled car — Gap insurance can be useful if your car is ever totaled.

There are various types of car insurance coverage available including collision and comprehensive coverage. Automotive liability typically comes under two categories bodily injury liability and property damage liability, both providing much of the coverage required by state law and what consumers usually seek and need.

Gap Insurance

Yet, there are other forms of auto insurance coverage including gap insurance. As the name suggests, this type of insurance closes the gap between what you owe on a car and what it is worth following total loss or a theft. You may think that you don’t need gap insurance, but without such coverage you could be left holding a hefty bill.

Gap insurance is particularly useful for consumers who own a new car. For instance, that BMW 328i Coupe has cost you $41,100 and you’re financing it with a $39,000 auto loan. You’ve made six payments of $380.44 per month (taking out a 5-year loan at 4 percent) and have reduced your outstanding balance to $36,717.

Insurance Example

One day, you find yourself driving down the road and you hit a patch of ice. Your car suddenly veers out of control, heads down an embankment and t-bones a tree on the passenger side. You’ve got some scrapes and bruises, but fortunately, you were able to leave your car relatively unscathed. Unfortunately, your car has sustained heavy damage and it won’t be drivable again.

Your insurance company has evaluated your car and has determined that repair costs will exceed what the car is worth. That worth is its actual cash value or what your car would fetch if you were to sell it. Your insurance company has pegged its value at $34,100 based on 20,500 miles driven. With its $1,000 deductible, you’ll be given a check for $33,100 and soon find yourself owing your financing company $3,617, representing the difference between the cars ACV and your remaining loan payments.

Financial Obligation

That difference is a gap and that is where gap insurance comes in. If you opted for gap insurance, the $3,617 difference would be covered by an insurance company and payment would be made by your insurer to your lender, freeing you of any further financial obligation.

Not every auto insurer offers gap insurance. Some companies, such as Progressive Insurance, do not offer gap insurance. Instead, you may be covered by a loan/lease payoff arrangement that limits the insurer’s payout maximum to 25 percent of your vehicles ACV. You may be covered, but your deductible would still be your responsibility. Check with your insurance carrier to see how you would fare if your car was totaled or stolen.

Upside Down Consumers

Gap coverage is especially desirable for upside down car buyers or people who owe more on their cars than what they are worth. And if your auto insurer doesn’t offer gap insurance, your lender may advises Monica Steinish writing for the Credit Union National Association.

Of course, one way to avoid a gap is to put down more money on your new car. When you put down at least 20 percent on your new vehicle, you are essentially assured that gap isn’t an issue with no worries that you’ll be socked with an outstanding payment from your lender.