the value of a vehicle depreciates between 15 and 25 percent every year. New cars lose as much as 11 percent of their value the moment they leave
the car lot. If you get in an accident,
you could end up owing more money on your car loan that the vehicle is worth.
In a recent article with cheapcarinsurance.net, Thomas Simeone explained that you have to keep making payments on your
car, even if it is totaled in an accident.
“In other words, the loan is still an obligation,” he said,
“even if the car is wrecked.”
With careful planning, you can protect your finances and avoid paying the
“gap” in the event of a serious car wreck.
How Gap Insurance Can Help
If you have Gap Insurance, you may be able to avoid paying the remainder
of the loan. In order to use your Gap Insurance, you must provide the
insurer with documentation that the insurance proceeds equal
less than the amount owed on the vehicle.
“You will not see any money,” Simeone said, “but the
loan will be paid in full.”
Paying for Gap Insurance
Gap Insurance can cost up to $1,000, but there are many ways to cover yourself.
You can purchase coverage from a car dealership, which allows you to roll
the cost into your auto loan. Many people are not disciplined enough to
set aside funds for Gap Insurance, so the increased cost may be worth
the convenience for many drivers.
A cheaper option is purchasing Gap Insurance through a credit union. In
some cases, you can purchase Gap Insurance simply by increasing your monthly
or yearly car insurance payments.
Is Gap Insurance right for you?
Gap Insurance isn’t for everyone. To protect your finances without Gap Insurance, consider setting aside
enough money to cover the outstanding portion of your auto loan in the
event of a serious accident. You can also save enough money for a significant
down payment, reducing the value of your auto loan and the need for Gap
Simply put, Simeone explained, Gap Insurance is a good option for drivers
how can’t afford the a substantial down payment or won’t be
able to cover the gap if they lose their vehicle in an accident.
“If you have the money,” he said, “either put it down
or, if you want to hold onto it at time of purchase, know that you will
have to pay a gap if you have an accident.”