GAP insurance

[dragontears]

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?

[Anonymous]

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).

[Anonymous]

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

[Anonymous]

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.

[dragontears]

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?

[Anonymous]

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.

[dragontears]

Thanks!

[pipeguy]

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 !

[Anonymous]

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.

[creditgambler2018]

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.