Should you have GAP insurance?
There’s few things as satisfying as that brand-new car smell, right? You take a deep breath and hold it, enjoying that feeling right before you realize you’re going to be paying that baby off for a while.
Unless you paid for it cash—in which case, props to you—new cars usually come with a brand new loan. Sometimes the loan ends up being more than your car is worth in a few months, thanks to depreciation.
This happens a lot if you didn’t put down a sizable amount up front. So let’s say your brand new car loan is about $20,000. Then that crazy guy from the car insurance commercials totals your car. Your insurance says your car is worth $15,000 but your loan is still about $5,000 more than that. What then?
That’s where gap insurance, or protection, comes in. It’s optional coverage designed to cover the difference between the value of your car and the amount of your car loan. It’s usually available only for newer cars, recently titled, or purchased. And great news—it’s very inexpensive.
When I added gap insurance to my auto policy, it only cost me about $26 extra per year. That’s a fair price for my financial peace of mind.
This add-on to your policy isn’t for everyone. If you aren’t concerned about your car loan balance exceeding how much your car is currently worth, then you probably don’t need to look into gap insurance. If you want to see if adding it to your policy is an option, call up your insurance agent and ask.
Your local credit union will also be a great resource for this, as well as offering great rates on new car financing. You could also check out one of our courses on buying a car if that is in your near future.