Have you ever totaled your car and the car value was less than the amount owed to the finance company? Could you imagine totaling your car and still owing the finance company? Having to make a payment on a vehicle which is a total loss is a hair pulling experience.
Well, the good news is that there is an insurance product that you can purchase when you finance your car; GAP insurance. GAP insurance covers the gap between what you owe on the vehicle loan or lease and the vehicle’s value as determined by the insurance company.
How could you wind up in this gap? Many buyers do not know that if a car is declared a total loss because of an accident or theft, their insurance company has no obligation to pay the loan in full. Unless you’ve purchased new car replacement coverage, the insurance company is only obligated to pay market value for the car, which can be far less than what you owe, if you owe more on a car than what it is worth, that is called being “upside down”.
Here are some indicators that you should purchase GAP insurance when you purchase your vehicle:
- You financed a car or truck with little or no down payment.
- You’ve traded in an upside down car and added the amount you still owe on your new car loan.
- You’ve bought a car that doesn’t have great resale value.
- You plan to pile the miles on quickly.
- You’ve taken out a car loan with a long term, i.e. over 60 months.
Make sure to speak with the finance department about GAP insurance when you are finalizing your deal