topic Re: GAP insurance in Auto Loans

GAP insurance

dragontears — Wed, 28 Jun 2017 14:53:50 GMT

In the past I have always paid cash for cars but I found myself needing a "new" vehicle before I had time to save the money to buy it outright and had to get a car loan. The car I got is a 2014 Toyota Corolla loan was through my CU at 2.99%. Thanks to this forum, I politely declined all of the add ons the dealership/finance was pushing (including GAP) as I think I would be able to get it cheaper with my CU, if I need it. My question is, since I have never financed a car I don't know when GAP is a good idea and when it is not needed.
Should I get GAP insurance?

Re: GAP insurance

Anonymous — Wed, 28 Jun 2017 16:13:56 GMT

GAP is only necessary if the value of your vehicle is much less than the payoff on your loan.

For example, if you bought a car and after all the taxes and registration and whatnot was rolled in, you financed $18,000 but the car's value is only $12,000 - if that car was stolen or totaled at that point, then the insurance company's payout would cover $12k (less any deductible) and you'd be on the hook for the other $6k+ immediately. GAP insurance would cover that $6k for you in such a situation.

The best rates for GAP are actually often found with your car insurance carrier. Most of them charge $2-3/month for it, with no obligation to keep it.

Once your loan payoff balance is close to or less than your car's book value, you can cancel monthly GAP coverage, so typically (for most people) it ends up costing you $50-$80 doing it this way; dealerships charge you a flat $400-750+ and lenders like credit unions typically charge $250-500 for the same thing, with a policy priced to extend to the end of your loan term (when it really isn't useful past the first couple of years in most cases).

Re: GAP insurance

Anonymous — Wed, 28 Jun 2017 16:58:22 GMT

I actually refinanced today from 16.99 to 4.5 with my local cu and added gap, figured why not as it was 275 more financed into the loan, the value of my vehicle is about 1000 difference but by next year I imagine that will be greater

Re: GAP insurance

Anonymous — Thu, 29 Jun 2017 02:37:09 GMT

Just to offer some additional info, a lot of auto insurance companies offer GAP for way less than the dealer or lender, and then you can decide when you don't need it anymore. Beats paying a flat fee for it. That's what I did on my last vehicle, and I think it cost like $7 every 6 months or something like that. Some insurance companies also now offer "repair/replace" coverage, which I just got for my new Grand Cherokee. If the car is totalled, they pay out based on the value of the current years equivalent to your vehicle. So you could end up with your loan paid off and money to put down on a replacement. For repair/replace, I am paying less than $2 per month.

Re: GAP insurance

dragontears — Thu, 29 Jun 2017 18:31:21 GMT

Thanks for the feedback everyone. Sounds like my insurance company is the way to go. I financed 14k, is there an easy way to find out what the car is "worth" so I can figure out if/how much underwater I am/will be once I start making payments?

Re: GAP insurance

Anonymous — Thu, 29 Jun 2017 18:39:40 GMT

The "blue book" value is not the same as the insurance value (the amount the insurance will pay out if the car is stolen or totaled).

But it's an easy-to-locate reference online, so I generally just keep an eye on the trade-in value of my car and deduct another 10%, to come up with the "in my head" insurance value.

It's by no means precise, and in past experience I am usually undervaluing the vehicle slightly, but it is a fair estimate for purposes of comparing loan payoff to collateral value.

Re: GAP insurance

dragontears — Thu, 29 Jun 2017 20:19:15 GMT

Thanks!

Re: GAP insurance

pipeguy — Thu, 29 Jun 2017 20:43:30 GMT

I have personally never taken GAP insurance and I've purchased at least 40 new cars and trucks over my lifetime - never needed or would have used it - however if you are going to finance 100% or purchase a vcar that'll lost over 50% of its value within 3 years, it'd probably not a bad thing if it's cheap enough $1000 from the dealer is not cheap enough !

Re: GAP insurance

Anonymous — Sun, 13 Aug 2017 17:25:56 GMT

One thing about taking gap coverage from the insurance company is , if you car has a lot of 'gap' after the fair market value calculated then they may not total it and try to repair it to save the cost. Thats why if you drive a lot / put a lot of miles on your car and it depreciates in value more ,then its better to take gap from the lender . Like a cu or something.

Re: GAP insurance

creditgambler2018 — Wed, 16 Aug 2017 05:27:08 GMT

use the cost of gap and apply it to auto loan. UNLESS IT IS A SUPER EXPENSIVE/UPSIDE DOWN CAR.

ALWAYS GET GAP ON A HUGE NEGATIVE EQUITY TRADED IN DEAL.

Re: GAP insurance

CowboyRay — Thu, 24 Aug 2017 07:33:35 GMT

Penfed sells GAP insurance pretty cheap, about $300 well worth ot if you buy an expensive car and finance for the long haul, worthless on a Toyota with a low interest, shorter loan mainly because Toyotas barely depreciate.

My dad recently bought a Toyota and the dealer offered gap for $800, I laughed because the dealer price was so inflated.

Re: GAP insurance

Anonymous — Thu, 24 Aug 2017 08:11:36 GMT

Great information! Did not know the different ways Gap Insurance could help survive a car loan pay off. Very interesting!

Re: GAP insurance

Loquat — Thu, 24 Aug 2017 16:17:43 GMT

@CowboyRay wrote:
Penfed sells GAP insurance pretty cheap, about $300 well worth ot if you buy an expensive car and finance for the long haul, worthless on a Toyota with a low interest, shorter loan mainly because Toyotas barely depreciate.

My dad recently bought a Toyota and the dealer offered gap for $800, I laughed because the dealer price was so inflated.

Cars are a depreciating asset. Toyota, Lexus, Land Rover, BMW, doesn't really matter. Yes, some depreciate faster than others, but nonetheless they all do. The need for GAP shouldn't be based on the legnth of the loan or interate rate, but more so about how much you finance verses the vehicles worth as well as how you plan to utilize the vehicle. If you drive a lot, tend to put more wear and tear on the vehicles condition from said driving, and financed a significant amount of the purchase price, then it's definitely something to consider.

I've never purchased a vehicle without GAP because I to tend to drive a lot (about 25k miles a year) and my vehicle takes on a lot abuse from highway driving (i.e. rock chips, etc). so unless I'm financing less than 50% of my vehicles value then the small cost of GAP is well worth it in my situations. Don't discount GAP as I've seen it save a few folks from making a car payment on a vehicle that's been totaled and they've owed a lot more than what the insurance company payout was. Making a car payment on a totaled vehicle while also making a payment on a replacement vehicle can't be a fun situation I would imagine.

Food for thought...

Re: GAP insurance

MakingProgress — Sat, 26 Aug 2017 20:43:42 GMT

My auto loan trough State Farm Bank no only had a lower interest rate than what the dealer offered but they include GAP in the loan at no additional cost. I know the cost of it is buried in the loan but it is no additional payment. So I have a lower APR, payment, and GAP included than I was offered from the dealer (who wanted to finance through (Capital One Auto) without GAP.

Re: GAP insurance

IncrsCreditScore1 — Sat, 26 Aug 2017 20:59:35 GMT

Great information. I am going to check with at least one relative who I know is paying for GAP. Will be interesting to see if she purchased from dealer or from her credit union.