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How Does Gap Insurance Work

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How Does Gap Insurance Work

What is Gap Insurance

It is a type of automotive insurance that you purchase in addition to your normal insurance. It protects you from unfortunate events such as totaling your car. GAP insurance, like it sounds, covers any gaps your normal insurance wouldn’t in the event your car was totaled and it will also cover your normal insurance deductible.

Why Invest in GAP

As soon as you purchase a car, new or used, that car starts losing value. You may already know, but for those who might not, this is called depreciation. With every day and every mile driven, your car’s worth depreciates. So picture this, you just took out a loan for $15,000 to buy a used vehicle, one year into your loan you total the car. Your insurance company says at that point that your car is only worth $10,000, however you still have $12, 500 to pay on your loan.

So now you need to come up with some money for a new car, pay your auto insurance deductible and you still owe the lender $2,500 on a car that’s sitting in a junkyard. What are you supposed to do? That’s where GAP comes in. GAP insurance will give you the additional $2,500 and pay your insurance company’s deductible.

GAP insurance protects you from getting into an accident and being left upside down in your loan. In other words, you won’t end up owing more than the car is worth. You also won’t be stuck paying off a loan while trying buy a new car.

What Is The Catch?

There is no catch. GAP insurance is a one-time upfront fee that you pay. If you decided to go through the More Than Wheels car-purchasing program, we include this protection at a discounted rate into your loan so that you do not have to pay it up front.

One thing to keep in mind about GAP insurance is that it will not cover any interest your lender charges you, or any late fees that you may have acquired.

Keep in mind, if you own your car or have a lot of equity invested in your automobile, GAP insurance is not for you. However, if you are leasing or have a loan for a car without a large down payment, then GAP insurance could save you hundreds, if not thousands in the end.

What Car Dealers Aren’t Telling You

Shopping for a car is an exciting, yet sometimes an overwhelming experience. Car dealers are always advertising some amazing deal-of-the-week. Do any of these sound familiar?

“No money down”

“Sign then Drive – all we need is your signature”

“Lease a brand new 2015 Buick Encore for $199/month”

“0% APR for the first 72 months”

“$1,000 bonus cash”

The hard truth is that these “deals” are not always what they seem. Let’s take the 2015 Ford Focus advertised as $15,909 or $218/month for example. What isn’t disclosed with this price are the assumptions that are made in order to arrive at that $218 monthly payment.

These assumptions also do not account for other fees such as: the dealer fee, warranties, or GAP insurance.

So what if you don’t have money for a down payment and your credit isn’t perfect? The reality of buying this 2015 Ford Focus looks a lot different.

The amount financed ends up looking more like $18,908 when it includes:

  • $399 dealer fee
  • $900 GAP Insurance
  • $1,700 Extended Warranty

The reality of the situation means paying $360/month for your car payment – that’s $142 more than the advertised payment! In order to make sure you don’t get duped by enticing ads, take time to consider the factors of reality that will influence your personal situation.

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