Welcome to today’s video blog! We’re diving into an important topic for anyone considering a new car purchase: GAP insurance. If you’re unfamiliar with it, GAP insurance covers the difference between what your auto insurance pays out and what you still owe on your car loan in the event your vehicle is totaled. Understanding whether or not you need this type of coverage can save you a lot of financial stress down the road.
Let’s break it down. When you finance a car, until you’ve made that final payment, the vehicle technically belongs to the lender. This means that if you get into an accident and the car is deemed a total loss, your insurance will only cover the car’s market value at the time of the accident. If you’ve just started paying off your loan with a small down payment, there’s a chance that the car’s market value is less than what you still owe. This is where GAP insurance steps in to protect you from having to pay out of pocket for a car you no longer have.
But GAP insurance isn’t necessary for everyone. For example, if you have a short-term loan or made a substantial down payment, you might reach an equity position quickly, making GAP insurance less critical. In today’s video, we’ll explore these scenarios in detail and help you decide if GAP insurance is a wise investment for your next car purchase. Stick around to learn more and make an informed decision about protecting your investment.
Should I Get GAP Insurance After Getting An Auto Loan? – Video Transcription:
”There are times when GAP insurance is a smart move for approved auto loans, but it’s crucial to weigh the pros and cons first.
Remember, until you make that final loan payment, your car technically belongs to the lender. If you get into an accident before paying it off, your full coverage insurance will handle the damages, minus your deductible. But if your car is totaled, the insurance company will only pay its current market value, potentially minus the deductible.
Here’s the catch: if you’re early into the loan and made a small down payment, your car could be worth much less than what you owe. In this scenario, you’d still need to keep making payments until the loan is fully paid off. While this is a worst-case scenario, it’s not unheard of.
This is where GAP insurance comes in handy. With GAP insurance, the insurer covers the difference between what your auto insurance pays and the remaining balance on your loan, after deductibles. In many states, if the accident wasn’t your fault, the insurance company might even waive the deductible.
However, GAP insurance might be unnecessary in certain situations. If you have a short-term loan of 36 months or less, you’ll likely reach an equity position quickly. Similarly, if you made a down payment of 20% or more, you’re probably in an equity position for most, if not all, of the loan duration, making GAP insurance less essential.
In most other cases, though, GAP insurance makes sense. A slight increase in your monthly payment could save you from owing thousands to a lender for a totaled car. It can also help you avoid defaulting on a loan if you can’t pay the remaining balance after an accident“