You waited for a few years for the time to be just right. Your old car is on its last legs, and you’re finally in a position to own a brand new vehicle. It’s a satisfying moment, knowing you can choose a car with the latest and greatest features, the best gas mileage, and with a decent warranty, at least for a few years.
Drive one mile off the lot, and you’ve just taken the most expensive ride of your life. When you buy a brand new vehicle, you can lose up to 20 percent of the value in the first year, most of it within the first days and weeks after you buy. What that means is that the value of your vehicle and the amount of your loan can have a big GAP. Why does that matter?
What is GAP Insurance?
Your standard insurance policy only covers the actual value of your vehicle - not what you paid for it and not what you owe on the loan. Depending on a variety of situations, in the first few years you own your car, your loan could easily exceed the value of your vehicle.
GAP insurance is additional coverage that pays the remaining amount of what you owe if your vehicle is totaled or stolen. Your standard policy will cover the value, GAP insurance covers the rest.
When is GAP Insurance a Good Idea?
The auto dealership may offer GAP insurance as part of the financing plan but your auto insurance company can often add GAP insurance to your policy at a fraction of the cost. When do you need GAP insurance?
- You made a small down payment, less than 20 percent.
- Your finance term is longer than 60 months.
- You leased your vehicle instead of buying it.
- You chose a make and model with unusually high or faster than normal depreciation.
- You had any amount left over on the loan from your old car and rolled that amount into your new loan.
Imagine that you spent $20,000 on a new car. After tax, tag, title, and more, your loan amount is really more than that. Within the first six months, you’re in an accident, and your car is completely totaled but now it’s valued at about $16,000. Your standard auto policy will pay the $16,000 but you’ll be on the hook for the rest. That is, unless, you have GAP insurance. For just a few more dollars a month, you can have peace of mind, and one less thing to worry about if you’re in an accident.
When you’re ready to add GAP insurance to your auto insurance policy or if you have questions about your current policy, contact us at Charlotte Insurance today.