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Authored by Nancy Preising, 28 years with ECU Credit Union, and over 30 years in the financial industry.
In my professional career, it’s important that I know the ins and outs about GAP Insurance. However, I have found out the hard way that not everyone knows about GAP or if/when they should purchase it. GAP protection is insurance that covers the difference of what you “owe” on the car and what it is “worth” so that you do not go out of pocket in the event of a total loss. And through the credit union, it only costs $400! Most dealerships charge $795 or more!! It’s a great deal and one of the many benefits of credit union membership.
Recently, a good friend of mine bought a new car and within the first 6 months of ownership, the car was totaled. When they bought the car they added on tire insurance, leather protection, and an extended warranty, but regrettably no GAP. Sadly, when they received the settlement from the insurance company, it was $10,000 less than what they owed! This is what I meant earlier by finding out the hard way.
Now GAP isn’t for everyone. If you are lucky enough to have an excellent trade and/or large down payment, GAP is most likely not something you would need. However, if you are like most of us, you may find yourself in a scenario where it might be a good idea to purchase GAP on your next automobile loan.
Financing all, or nearly all of the car purchase, will immediately put you upside down on the loan. If you include the tax, license, and registration in your loan you will be borrowing more than the car is worth. Extras such as a warranty or an extended service plan will inflate the loan and you will very quickly owe more than the cars value. This trend, coupled with the shift to longer loan terms of 72 or 84 months, and you will find that you won’t have equity in your car for a very long time.
GAP is a no-brainer! The risk with any of these situations is that you will owe more on the loan than the car is worth. If you were to encounter a total loss (by theft or accident) the insurance will only cover what the car is worth and not what you actually owe.
To GAP or not to GAP… now you know the answer!
Recently, a good friend of mine bought a new car and within the first 6 months of ownership, the car was totaled. When they bought the car they added on tire insurance, leather protection, and an extended warranty, but regrettably no GAP. Sadly, when they received the settlement from the insurance company, it was $10,000 less than what they owed! This is what I meant earlier by finding out the hard way.
Now GAP isn’t for everyone. If you are lucky enough to have an excellent trade and/or large down payment, GAP is most likely not something you would need. However, if you are like most of us, you may find yourself in a scenario where it might be a good idea to purchase GAP on your next automobile loan.
Financing all, or nearly all of the car purchase, will immediately put you upside down on the loan. If you include the tax, license, and registration in your loan you will be borrowing more than the car is worth. Extras such as a warranty or an extended service plan will inflate the loan and you will very quickly owe more than the cars value. This trend, coupled with the shift to longer loan terms of 72 or 84 months, and you will find that you won’t have equity in your car for a very long time.
GAP is a no-brainer! The risk with any of these situations is that you will owe more on the loan than the car is worth. If you were to encounter a total loss (by theft or accident) the insurance will only cover what the car is worth and not what you actually owe.
To GAP or not to GAP… now you know the answer!
