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Is It Worth Buying Gap Insurance For A Used Car

Car loan GAP insurance is worth it on used cars with long term loan lengths but only when youre getting it for a reasonable rate. Like all insurance policies you really will think it was worth buying if you need to claim on the policy.

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Is it worth buying gap insurance for a used car. Gap insurance will help cover the costs of paying off your loan and perhaps even give you some breathing room to get a new car in the instance that your car is totaled. If there is any time during which you owe more on your car than it is currently worth gap insurance is definitely worth the money. GAP insurance can cost as little as 167mocan and covers 25 more than the actual cash value of your vehicle so you dont pay out of pocket in the event of an accident.

You put down 5000 and finance the car for five years. While GAP insurance is strongly recommended when purchasing brand new cars it is less of a necessity when buying a used car. For example if you owe 20000 on a car that your insurance company totals for 12000 gap insurance may pay off.

As the value will already be lower with a used car and the depreciation process having slowed the gap it covers between the price you paid and what your insurer will pay out is a lot less and therefore with a used-car gap insurance is often worthless. GAP insurance is a policy that pays out when a car is written off or stolen and not recovered and pays the difference between the insurance payout and the original purchase price or the outstanding finance settlement whichever is greater. The Insurance Information Institute estimates that new cars lose about 20 percent of their value in the first year of ownership.

Let us put together a scenario that shows GAP insurance in action. The bottom line. Suppose you buy a car that costs 25000.

The reason for this is that used cars do not depreciate in value as quickly as new cars. If your car is worth far more than the loan and you know that your insurance companys total loss payout will exceed the amount of the loan you dont need to buy gap insurance. While GAP car valuation can save you a lot of money in the event of an accident dealerships often try to charge you an arm and a leg for coverage that actually should not be that expensive.

It should be a pretty simple decision although the dealers will try every trick in the book to get you to buy it from them because thats a profit center for them its an extra value added coverage for us. This means over the next sixty months you owe the bank 27000. You are putting down a minimal amount of money on the car.

For example a three-year-old car might only depreciate in value by 30 in the first three years you own it compared to up to 70 for a brand new vehicle. Gap insurance stands for Guaranteed Asset Protection insurance. You have a used car You can still buy gap insurance for a second-hand car however it is less useful because used vehicles depreciate in value much slower than brand new ones.

You are buying a newer used vehicle. For instance if its only a year old. After tax motor vehicle incidentals and finance charges the total comes to 32000.

However if youre financing the vehicle for less than the car is worth gap insurance isnt usually necessary. Kevin Hunter explores this in more detail in the following video. Getting GAP insurance on a used car is uncommon but if you take out a longer-term auto loan GAP insurance is worth it.

You generally need gap insurance for just a few years until the gap between what you owe and what the car is worth closes. Fortunately gap insurance is pretty cheap. When Its Worth It If you are buying a used car and any of the following apply to you GAP insurance may be a good idea.

If in the event of a total loss you have the ability to continue to make loan payments or pay off the loan you dont need gap insurance. This is because new cars depreciate at a much faster rate. Is the term of my new loan longer than 60 months.

If you took out a big loan to buy your car gap insurance could save you from a big financial hit if your car gets totaled especially if you bought a luxury ride. If youre financing a vehicle for a dollar amount thats larger than what the vehicle is worth according to blue book standards Gap insurance can be a good idea. Heres an example of a policy with a total annual premium cost of 1500.

It is an optional add-on coverage that can help certain drivers cover the gap between the financed amount owed on their car and their cars actual cash value ACV in the event of a covered incident where their car is declared a total loss. No you can buy it with new or used cars THOUGH its a lot more useful with new cars. A typical gap insurance premium is calculated based on the collision and comprehensive coverage premiums in a policy and it typically costs about 5 or 6 of that cost.

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