Gap Insurance?

[lanetang]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

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[Sleepyalero]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

gap coverage is there to pay off your loan.

lets say you owe 20k on a vehilce, but the car is only worth 17k street value, your insurance (car insurance) will cover the street value of the car, then you are left with the remaining balance of 3k to pay off your loan, thats where GAP steps in and pays off the rest.

 

[Darnon]

It mostly comes down to how much you will be financing in comparison to the MSRP. Well, technically market value, but then you're betting on the used appreciation bubble holding for a year+. The rule of thumb is typically if you're 10-20% under you don't need GAP. So it depends on what down payment and trade in equity is compared to extra financed costs like taxes & fees, accessories, ESP (warranty), negative equity on trade, and the cost of the GAP itself. You can source it through your insurance provider, the bank/CU you're financing through, or the dealer. Often the dealer is more expensive, but depending on the terms it might pay for the base insurance deductible, extra for a replacement, or accommodate higher loan-to-value ratios if you're rolling in negative equity than a bank/CU/insurance will.

 

[lanetang]

gap coverage is there to pay off your loan.

lets say you owe 20k on a vehilce, but the car is only worth 17k street value, your insurance (car insurance) will cover the street value of the car, then you are left with the remaining balance of 3k to pay off your loan, thats where GAP steps in and pays off the rest.

Okay. Since the Mavericks street value is going to be more than the MSRP, then I wouldn’t need gap insurance?

My hybrid Lariat Lux is going to cost me around $32k. I’m putting 4k down and so I will finance 28k. I’m not sure who determines the street value, but I’m pretty sure I could sell the truck for much more than $30k. I guess it comes down to who determines the street value.

 

[Sleepyalero]

Okay. Since the Mavericks street value is going to be more than the MSRP, then I wouldn’t need gap insurance?

My hybrid Lariat Lux is going to cost me around $32k. I’m putting 4k down and so I will finance 28k. I’m not sure who determines the street value, but I’m pretty sure I could sell the truck for much more than $30k. I guess it comes down to who determines the street value.

im no agent, but id be safer then sorry and get the GAP just in case, you never know what can happen, today, the market is inflated, and our trucks are worth 5k more then MSRP, a year from now they could be worth 5k less then MSRP and you may be on the hook for some money owed. i would rather play it safe and make sure im covered in case of a total loss event.

 

[TacoHolder]

IMO kind of a waste on trucks because they hold their value so we'll, but I would take it if it's cheap and I finance for 60+ months with a low down payment.

 

[Bunkyg]

Having gap is not necessarily a bad thing to have. Having said that do not purchase from the dealer. Dealers tend to charge $1000 and up for gap. Credit unions tend to be in the $300 range for the exact same coverage through the same insurance companies. Some auto insurance providers will also handle gap for roughly $10 per month. Gap insurance is to protect you from lump sum payout if your vehicle becomes totaled

 

[Zephyr's Grandma]

Since the majority will be financing vehicle then it's well worth it. If in an accident & let's say car is totaled a day after you drive it off the lot, you will still owe the full balance on vehicle after your insurance gives you the blue book value. Remember, your new vehicle automatically depreciates the minute you drive it off the lot, so you will owe the balance. My auto insurance co. says I can get that with them at approx. $6. additional per monthly pymt. If I go with the dealership it will be triple the cost.

 

[TSAINTS1115]

Okay. Since the Mavericks street value is going to be more than the MSRP, then I wouldn’t need gap insurance?

My hybrid Lariat Lux is going to cost me around $32k. I’m putting 4k down and so I will finance 28k. I’m not sure who determines the street value, but I’m pretty sure I could sell the truck for much more than $30k. I guess it comes down to who determines the street value.

GAP would pay the shortage on YOUR loan. Speculative "street values" won't be the factor your insurance provider will use. At best they will look at is MSRP and go from there.

 

[MLowe05]

It's not just the amount you finance, but how long the term is and what the APR is.

If you spend $32,000, put down $4,000, finance $28,000 at 0/36 or .9/48 - you probably don't need it.

IF you finance 72 months, you should take it.

Personally, I am going to go $0 down, .9/48, and not take GAP.

 

[dgnx6]

The alleged build date for my Hybrid Lariat Lux package is 2/7. As I plan ahead, I am curious to the purpose of gap insurance and how it works. I believe gap insurance is there in case something tragic happens to a relatively new vehicle and we end up owing more than what we paid. However, we are in a strange world where when I drive the new Maverick off the lot, the value of vehicle is more than what I paid for it. I haven't bought many cars so I am hopeful someone here may have some advice.

Should I consider gap insurance or is it a waste in this situation?

Generally is just more of a scam imo, especially if you buy from dealer. And if you total your car driving it off the lot thats just some shitty luck.

Also if you dont put a bunch down and have an 84 month loan. After a year of making payments the car is going to be worth less than what you still owe. So you bought a vehicle you couldnt afford.

 

[pxpaulx]

It's not just the amount you finance, but how long the term is and what the APR is.

If you spend $32,000, put down $4,000, finance $28,000 at 0/36 or .9/48 - you probably don't need it.

IF you finance 72 months, you should take it.

Personally, I am going to go $0 down, .9/48, and not take GAP.

This is a great answer! It is entirely about your loan's value against what an insurance company would pay out at any given point. Once the amount you owe is less than the insurance value, gap insurance provides zero value - it is only to pay the difference on a loan that is under water.

Even with today's market, I think there are general guides you can use.

How much are you financing?

If 100% of MSRP, gap may be beneficial - 80% or less, you're probably in the window where your payments will keep pace with the decreasing value enough to not warrant it.

CRITICAL(!!!) Before you buy, check if your auto insurance offers it (many do, not sure if this is state-to-state though) - keep it as long as you think you are under water with the loan, then drop it once you've passed that point where you believe you would not be under water (this is somewhat arbitrary, but you can use KBB and other avenues to assess value and make that risk decision on your own).

Using gap through your insurance is cancellable at any time - this is preferable for the reason above - you only need to pay for it if your loan is under water. After you're no longer under water a gap insurance premium is a worthless piece of paper that you'd otherwise be paying over the life of your loan.

$800 Gap insurance with a 60/1.9 costs $839. Last time I paid gap on insurance it was $5-6 (Dodge Challenger) - after 2-3 years or so once you are no longer under water it can be dropped, and will probably cost under $150 give or take.

 

[FriscoTXJoe]

I know the market is insane right now but assuming a used vehicle is worth more than the new model is a big mistake.

 

[Thrillhouse]

Insurance companies aren't going to pay you what you can sell the car for on Carvana. Your down payment is roughly 12%. That would be cutting it close depending on your term and interest rate. Gap insurance, if needed, shouldn't be needed for the duration of the loan. It's usually just needed for the very beginning of the loan.

 

[TooManyVehicles]

I'm going to say something controversial here, and perhaps even un-American. Gap "insurance" is done to cover when you are underwater on a vehicle, i.e. you owe more than will be paid for if totaled.

Now for the un-American part: I put insurance in quotes because one should only "insure" for risks that they can't account for. If you would be destitute because your Maverick totaled value was less than your loan, I would humbly suggest you need to have more in an emergency fund.

Insurance is a money making business, and some very smart math-heads are involved in risk pricing...all with an eye to make the insurance company money.

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