Do I Need GAP Coverage?
We have all seen the commercials. Just sign your name and drive away in a new car. Sometimes it’s on a lease, and sometimes it is financing with nothing down. Either way, although it’s a great way to obtain the car, it could present a big problem for the buyer.
As we know, new cars depreciate substantially the minute you drive away from the dealer – some say up to 10%. That means that for a while you are going to owe more on the car than what it is worth. If the car is stolen, totaled in an accident, or otherwise destroyed, the typical car insurance policy pays for its actual cash value. Since that is less than the loan or lease value, guess who is going to pay the balance?
To solve this problem insurance companies offer coverage to close the “gap” between the car’s value and the balance owed on it. Although it carries an additional charge, it is something everyone who has financed a vehicle needs to consider.
Most dealers will provide this for their customers, but at a cost much higher than insurance companies typically charge. Sometimes, it is also included in lease agreements. However, an astute buyer will check to see if it can be taken out of the lease reducing monthly payments and purchase it from their insurance company for less.
Whether you buy it from your insurance company or from the dealer, everyone who buys or leases a new (or slightly used) car with little or no money down needs to look into purchasing this valuable protection.