When Gap Car Insurance Isn’t Necessary

Gap auto insurance, in case you didn’t know, picks up the tab if your car is totaled and you owe more than it’s worth. Although gap insurance coverage can be purchased for as little as $30 a year it isn’t always necessary.

One instance is if you pay cash for your new car; if you don’t have an unpaid loan balance, there is no financing gap to worry about.

However, paid for or not, a new car will still depreciate at the same rate. In this case you might want to look at New Car Replacement Insurance.

New car replacement insurance is offered by a number of carriers for different lengths of time. Some insurers offer replacement insurance for only a month while others, such as Allstate, offer a plan where “you may be able to get a totally new car” if totaled in the first three model years.

A second instance when you would not need gap insurance is if you put at least 20% down. In most cases if you put 20% down the rate at which the car loan is paid down should track pretty close to the depreciated value of your car.

Another situation where you might not need gap protection is if you lease a new or used car. In many states, such as New York, gap insurance is mandated by law to be included in the quoted lease payment amount.

Yet despite this there are unscrupulous sales people who will try to sell you gap insurance anyway – and it won’t come cheap. The gap insurance sold by car dealerships today is a high profit add on much like upholstery protection or under carriage coating was years ago.

The average one time payment for gap insurance purchased from a car dealer averages around $548. This is almost 5 times more than it would cost if purchased from a major insurance carrier for as long as you needed it.

The last example illustrates why you would need gap insurance, but for only a short period of time.

The recent loosening of bank purse strings has also meant lower car financing rates for both new and used cars. As a matter of fact the rates are very similar. At these new low rates the outstanding loan balance and depreciated car value quickly reach parity – usually within two years.

However, that first year of car ownership is still a killer for car values. For instance, if you borrowed $40,000 for 60 months at 6% with zero down, 20% of the loan would be paid in the first year but your car would have depreciated 25%. This would leave you owing roughly $2,500 more than the insurance company would pay out if your car was totaled during the first year of ownership.

But, as previously mentioned, during the second year of ownership the value or your car and the loan balance would even out. So although you won’t be able to eliminate the purchase of gap insurance entirely, you would only need it for the first year of ownership.

How To Determine If You Should Lease Or Buy A New Car

It is only normal for people to want to save money, and in terms of acquiring a new car, one of the most common questions is whether or not one should buy a new car or lease one. There are all kinds of experts out there who say one way or the other is “always” the right answer, but the problem is that their “right answers” fall on both sides of that fence.

The real answer is that it depends on you and what you want to accomplish, as well as your car habits. For car habits, we are referring to how often you get a new car. Do you get a new car once every couple of years, or only when the wheels fall off the previous one? If you always need to have a late model car and don’t care that it really never gets paid off, then leasing is probably a better option for you.

How many miles do you typically drive over the course of a year? If you are a traveling salesman or a tech support person covering a large geographic area, meaning you put a lot of miles on your car, then leasing is almost certainly not your best option. Leasing programs are getting more flexible these days, allowing you to specify how many miles you will drive over the course of your lease, but if it works out to be much more than the standard 12,000 miles per year, you will probably find that the cost of leasing actually exceeds the cost of buying a new car.

Look at it like this. On a lease, the dealer needs to figure out what he can sell the car for at the end of your lease period, say two years. At 12k miles per year, a two year old car with only 24k miles on it will still demand a decent price if it’s in good shape, and allow the dealer to make a reasonable profit on the sale. But that same two year old car with 50k miles on it is going to sell for considerably less because of the much higher mileage, and your lease payments will reflect the fact that the value of that vehicle is going to be less, and YOU will be paying the difference in your lease payments.

With a lease, you never build up any equity in the car. It is like having a permanent car payment. Yes, at the end of the lease you can buy the car, but at that point you could probably get a better deal on a better used car, so that is an option that very few people take advantage of. On a lease, you still pay for insurance, tires, oil changes, and all the other stuff that you would pay for if you owned the car. In fact, you will always need to carry full insurance coverage on the car, whereas you can drop the expensive collision insurance on a car that you own after you have paid it off.

On the other hand, if you are using the car for business purposes, a lease will provide you with a bigger tax write-off than a purchase, generally speaking. Also with leasing, your monthly payment will typically be less, depending of course on the model of car you choose.

If your credit rating is less than stellar, you may wish to consider purchasing instead. While you can find car loan programs for people with average credit and even bad credit, it is much more difficult to find a good lease program for people with less than good credit because the risk to the dealer and manufacturer is greater.

You need to do your homework and determine which is the best way to go based on your driving habits and car ownership habits. There is no right answer that fits all people, so make the informed decision that is right for you.

Car Loans – Bad Credit – No Problem

If you are looking for car loans with bad credit, it may be no problem. Most people do not believe you can get car loans with bad credit but this is not always the case. There are several dealerships or auto consultants who specialize in getting car loans for people with bad credit.

If you are in the need for a car loan and have bad credit here are some tidbits that may be helpful to you.

Since not every dealership offers special financing you may want to start by doing a little homework. You can do a search on line for local dealerships or auto consultants who have special finance departments. Another route may be to ask friends and family if they have had a similar need for car loans with bad credit.

The key is to find a car dealership or auto consultant who truly cares about you and your situation. There are some salespeople out there that may consider special financing a troublesome situation and these may be the people you want to avoid.

Look for a salesperson that treats you with respect and shows enthusiasm toward finding you a car loan despite your bad credit. Let’s face it, bad credit is already stressful to those that carry a low credit score. There is no need to further the agony as you search for a car loan under bad credit circumstances.

Furthermore, a car loan may be the perfect answer to helping you improve your credit score. By securing a loan for a car and faithfully making the loan payments on time every month, you can begin the climb toward raising your credit score.

By utilizing a car loan through a trusted dealership or auto consultant you can create a win/win situation. In addition to improving your credit rating, you will get a set of trustworthy wheels to take you around town.

This leads to the next tidbit – a trustworthy car. Many establishments that offer car loans to those with bad credit have a nice inventory of late model cars with lower mileage. A quality special finance department will have the car inspected for the engine’s performance along with a safety inspection to assure you have a quality car that is safe for your family.

When you go to shop for a quality car loan with bad credit, bring the necessary paperwork with you, this will help you to get pre-approved. You will need a current driver’s license and proof of insurance. In addition, you will need a couple of your check stubs for proof of income. You may be asked to provide proof of residency with a utility bill and your cell phone bill. This will help you in getting pre-approved.

Being pre-approved will allow the special finance person to begin looking for your perfect car loan despite your bad credit.