Best Auto Insurance!

What is benefit of GAP insurance with a car loan?

by Anita Johnston on 01/03/2011 08:42 AM

Lenders require full coverage insurance when you buy a new car and you know this is perfect and you have no worries if the car is totaled during a wreck or is stolen.

If you do not have GAP insurance, you are not as perfect as you might think. If you are involved in an accident and the car is totaled or your new car is stolen, GAP insurance will pay the difference between the actual cash value, which is what the insurance company will pay, and the amount you still owe on the car loan. This amount can add up to thousands of dollars as new cars start to depreciate as soon as they are driven off the lot.

You can find all kinds of great deals for financing new cars such as no payments for so many months and no money down. These great deals on the other hand can add even a larger gap between the amount you owe and the actual cash value of the car.

Every loan company requires car loan borrowers to carry full coverage on the car, but if the car is totaled or stolen during the first few years, you may not believe the gap you will have to pay for a car that is gone whether stolen or totaled.

Experts say that in only three months after driving a car off the lot it is worth 30% less than the day you bought the car. This means the money you have left on the loan will be more than the car is worth.

Just about everyone that buys a new car thinks the car insurance will pay for the car to be replaced which to them means the price they paid or what is left on their loan. The sad truth is the insurance company only pays actual cash value if the car is stolen or totaled in an accident.

The sad part that in the first 3 to 4 years practically all car buyers are upside down in their car loan, which means they owe more than the car is actually worth. If during this time period, a loss occurs the money between what the insurance company pays and the loan will still have to be paid by the borrower unless they have GAP insurance as protection.

GAP insurance may be expensive, however, it will cost even more if the unthinkable happens and you do not have the proper coverage.