Why Do You Need Gap Insurance?
When an insurance company considers a vehicle to be a total loss, they pay its value at the time of the loss. If you have a loan or lease for which you owe more than that amount on the car, gap insurance will cover the difference.
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Low Down Payment
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When your down payment is 20 percent or less of the total cost of the car, it may be worth less than you owe as soon as you drive it off the car lot. Gap insurance will make up this difference.
Negative Equity Loan
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If your previous car loan ended with negative equity that was subsequently rolled into your new car loan, gap insurance will cover that difference as well.
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Long Loan
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If your loan repayment term is 72 months or more, gap insurance would be a good idea. This is because it will take you longer to get to the point when your car is worth less than what you owe for it.
Expensive Cars
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New cars, especially expensive or specialty ones, can lose up to 30 percent of their value within the first month you own it. If your car falls into this category, gap insurance can save you a lot of money in case of total loss.
Lease
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Many lease contracts already include gap insurance, but it is important to check the details when signing it. If it is not included, it can be purchased through your auto insurance company.
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References
- Photo Credit Image by Flickr.com, courtesy of Rick Flores
