Let’s talk GAP. No not the clothing brand but something that could save your keister in the event you ever found yourself in a sticky situation. Let us first define what GAP insurance is and then let’s discuss who needs it and why it might help.
GAP insurance- a completely optional protection plan that can be added to your comprehensive insurance policy that will cover the difference between the balance you owe on your car and the actual value in the event it is totaled. For example, let’s imagine you purchased a 2016 Dodge Charger for $40,000 and 6 months later it is totaled. Book value on the car is $32,000 and your balance after 6 months is $37,000. If you do not have GAP insurance, the $5,000 difference between the value and what you owe is your responsibility. Your insurance company would send you a check for $32,000 and then you would be on the hook for paying $5,000 to your finance company to close out the loan. If you have GAP insurance, your insurance company would send you a check for the $37,000 you owe and you’re all even. No negative equity and your account is in the clear. From there, you call Automodeals for your next car ;-).
There are a few instances where GAP insurance is not necessary. The first would be if you score a realllllllly good deal on the car you’re purchasing. What I mean by this is your financed amount is below the book value for the vehicle. For instance, if you finance $25,000 and the car is worth $30,000, there is no reason to pay for GAP insurance.
The second ties back to the first. If you’re putting a large amount of money down on the vehicle, again there is no need to purchase the GAP insurance. You DEFINITELY want to purchase it if you’re buying a car that will depreciate quickly and you put little or nothing down. That is a major liability that could cost you a small fortune in the event something happened to the car.
In most cases, lease contracts include GAP. Double check to make certain but traditional lease companies require it.
GAP policies are offered by dealerships and some lenders even offer policies. Automodeals can provide you with cost details based on advanced research. I am a proponent for GAP if you fit into one of the categories that can benefit from it.