If you watch the news, you don’t need a reminder that what’s here today can easily be gone tomorrow. A message especially important if you’re financing a new car.
Because the instant a new car leaves the lot, it becomes a used car. It could also instantly be worth less than the loan amount: a situation called upside down. That’s where gap insurance kicks in.
“Basically you finance the car for $30K, you drive it off the lot and technically it might be worth $27K the next day…if in a total wreck in which the car is just destroyed, the insurance company would pay the full $30K.”
So if you’re afraid of owing more than your car is worth, you might consider gap insurance, but many experts, including this one, don’t recommend it.
“I generally don’t recommend gap insurance for people who finance cars and the reason being that very few cars get wrecked in the first year to the point where they’re totaled.”
And if you do decide on gap insurance, shop it. Don’t just take it from the dealer. Look online, check with your insurance company… even your credit union. And make sure you understand what’s covered.
Bottom line? Whether you need gap insurance depends on how much you put down and your tolerence for risk. But if you decide you’re a candidate, don’t just get it from the dealer: shop it.