Buying a new car can be an exciting process. But before you start enjoying it, be sure you’re not already upside-down on your car loan, which could put you at risk financially if your vehicle is ever totaled or stolen.Are you already upside-down on your car loan?
There are a variety of reasons you could end up upside-down on your car loan if you’re not careful. For example, you may be at risk:
- If you paid little or no money down
- If your financing included additional fees like title, registration and taxes
- If you leased or financed your car for an extended term
- If you chose a vehicle that depreciates more quickly than most (i.e., luxury cars)
What is gap coverage?
Gap insurance coverage protects you against the financial burden of paying the difference between what you owe on your vehicle and what the insurance company will pay if your car was ever wrecked or stolen based on the actual cash value (ACV) of your car. ACV is equal to the cost of your car when it was new, minus depreciation for age, mileage, physical condition and other factors.How can gap coverage save you thousands? A real life example.
Let’s say you purchased a $35,000 car earlier this year and you now owe $30,000. Now let’s imagine that you totaled your car within the first year and the ACV is currently only $25,000. You have a deductible of $500, so the insurance settlement is $24,500. In this scenario, if you didn’t have gap insurance, you would be responsible for the remaining $5,500 on the loan. However, if you had gap insurance, your provider would take care of that remaining amount instead of you being without a car and in the red for over five grand.Car accidents are a headache no matter how big or small. But if the unfortunate occurs and your vehichle is totaled, gap insurance gives you one less headache to worry about. Some companies offer the car insurance coverage you can count on to stay protected. They’ll help you secure the gap coverage you need to stay protected and find the insurance discounts you may qualify for. Plus, if you still haven’t purchased the car of your dreams, look for a lender who can offer you an attractive car loan to help you pay less on the money you borrow when you’re ready to finance your new ride.