Gap VS Putting 20% Down

[simplegirl]

I am wondering would it be better to put 20% down or pay for gap in full? The amount of the vehicle out the door price is 45,969. I am considering get gap insurance through penfed.

[dabrian]

I prefer to put the 20 percent down. I don't like the idea of an upside down car loan.

[StartingOver10]

It's a personal decision. I agree with the poster above about putting down 20% as I personally don't like starting out upside down. Leave yourself some wiggle room with a larger down payment if you want or need to sell the vehicle earlier than planned.  The best way to do that is to have as large a down payment as you can afford.  JMO.

[simplegirl]

Thank you both for your reponses and I was considering putting down 27,000 which is more than 20%. I understand what ya'll are saying and it does make more sense to put something down.

[Appleman]

PenFed gap is fairly inexpensive if I remember, maybe $300.

You are looking at $9,000 to put 20% down on a $45,000 car. At 2% that $9,000 will run around $465 in interest over 5 years.

So by getting the GAP and not putting the 20% down, it will cost you $765 for carrying gap insurance (interest + cost of GAP). If you have it pay the money down.

OR, you pay the GAP and in the first month for some unfortunate reason the car is totaled. In this case if you had GAP you would likely come out ahead versus having money down. This argument assumes depreciation as you drive off the lot that you have covered with your down payment. The insurance check covers the loan balance but does not get you back to the total you payed the day you bought the car.

OR, you have a credit card or personal loan that is at 15%. In this case it would likely be best to buy the GAP and pay the high interest.

Just depends on your personal situation.

[Anonymous]

The Gap insurance situation is very interesting and as the above posters illustrate NOT a one size fits all.

Most ppl back in the day were force fed GAP... Because
1) The buyer has bad credit and little to no down payment
hence
No negotiating power...Which lead to overpaying and being tremendously upside down on a car that was already sold @ 120-130 LTV driving off the lot

(Yeah, dealers can be greedy but also the lenders can discount the crap out of especially small dealers in order to get a deal down...So the dealers started packing 'extras' like extended warranties, Gap, anti-theft, undercoating, etc to try recoup being penciled...)

Anyway, in a normal circumstance in today's world the % rates are so low...This becomes interesting, the cost of GAP as come down as more players sale it.

A huge factor, also to consider is just how well one bought the car, equity wise...20% is 30% down if you bought well and 20% down might be 12% down if you bought worse....Gotta know the numbers

And this can be actually tougher for newer car because what looks like 20% down today may turn out to be 11% very easily, as a new trim line gets introduce the following year of the public's taste changes

Home values aren't as fickle as a car might be generally over a 20 month timeframe...

That's why I to like a decent amount of room between a car loan amount and it's so called value at that moment

One recall of a wiper belt or a competitor introducing a hot new model can easily eat into the value of what your ride is worth, especially newer cars a 5-10% swing in value ain't hard to happen

Your 45k sweet ride can absolutely be bought months later at 39, 38 etc so again as the say in the car biz ...You make the money how you buy and many times on new cars it's degrees of losing 😑

[Loquat]

GAP is really cheap in most situations.  Now, you said you're putting $27k down which does indeed elimate the need for GAP.  But I caution folks (obviously not someone in your situation putting down such a substantial amount) that even with putting money down, you can still end up upside down in a vehicle depending on your driving habits and what kind of vehicle you're purchasing. 

Prior to going to nursing school I use to work at a dealer.  And I can tell you from experience, you need GAP if you're not putting down a very large amount and you're purchasing a vehicle that can be found in any average rental fleet.  Case in point, if you can find it on an Enterprise/Budget/Hertz lot, and you're not putting down a lot of money, GAP will be the best thing you purchase for a small amount of money.  When the rental companies dump their used, 1-2 year old vehicles, into the used car market as they turn their fleet, you wouldn't believe how much an Impala, Taurus, or any other typical fleet/rental type vehicle drops in value.  A new Impala today can cost you $30k+...once Enterprise dumps their fleet and you can find that exact car at just about any used car lot you'll quickly realize that you one year old, 10k mile car is probably only worth 2/3 of what you paid for it a year prior.  

Obviosuly this doesn't apply to you...but can be helpful to anyone else reading this thread.  Best of luck in whatever you decide to do!

[Anonymous]

1) The OP actually was considering between choices, they hadn't made a decision with regards to the 27k of course on a 47k purchase that is way more than the 20% vs GAP discussion in the 1st place.
So the discussion can't help but to go every which way but loose because the variables are such (which is kinda fun in a way, truth be told☺...We just have to remember the target is constantly moving as we consider different data to comment from)

2) @Loquat
Gives a Great example of what I was speaking of in my prior past (Thanks btw) in how there are viables that exist that can easily dilute the value proposition you "thought" you made in a car purchase

It's no big deal but one has to understand, as mentioned if a load of fleet cars, decent mileage or not gets dumped in the market your equity position could change even 3 years in...And what can you do, you owe what you owe on the loan you took out to buy what you bought at the time.

Same thing as I mentioned before, if a new trim line comes out the following year the value of your model could drop like a rock

Nobody's fault, it's just the perils of auto purchases, unlike homes where appreciation generally helps us out in the long run, cars just don't do that and as prices have skyrocketed over the years, no real good solution has appeared

Well, except for letting the other guy pay for the blush off the bloom and waiting a few years the be the 2nd owner....Other than that buying a new year is generally about degrees of losing vs alright winning