Many motorists cannot/won’t wait until they earn enough money to buy their dream car outright. If you are happy to pay the interest there are many lenders who will help you purchase the automobile you want. If this is the route you choose, you need to know how you can insure yourself against being upside down on your loan. When you owe more than the current value of your automobile you are running the risk of having to pay out of pocket if your car is totalled. Many people may think that their auto insurer will pay enough to cover the debt if they lose their vehicle as a result of one of the insured perils. This is not the case unless you have gap insurance.
Guaranteed Auto Protection (GAP) insurance is not a cover for the auto but the loan taken out to buy it. Most lenders will require this coverage to be included in your policy. Then, you know what it does and how it can help you. Some leasing companies may arrange this coverage and include the cost in the leasing agreement as well.
A policy is supposed to pay for damages occurred so that people can enjoy the same facilities as before the loss. In the case of car insurance coverage, it is normally limited to the open market value plus registration fees. They will pay you the open market value of the vehicle at the time of the accident. In other words, they pay you enough money to buy another automobile of similar age and specifications. They take the average of the prices of similar cars currently on sale, make slight adjustments because yours is low mileage, well looked after or have some improvements done and work out a settlement.
Nonetheless, this money may not be enough for you to settle the outstanding loan (without gap insurance). If this is the case, you have a problem that can prevent you to purchase another car. Since you already have a loan outstanding it will not be easy to get another one. So, you will have to find the additional money to close it off.
Normally, cars lose their value fast in the first couple of years of purchase. In two years you can lose as much as fifty percent of your investment especially when you bought many extra features with it. However, you may find that your loan amount has only come down a little. Most borrowings are calculated in a way that initial years are interest loaded and repayments are done mainly in the later years.
Gap insurance can be bought for used vehicles as well. The main criterion to look at is the chance of being upside-down on your loan. You can ask your insurer to add this coverage if you prefer and most lenders will not have a problem with this arrangement. You don’t have to buy your insurance from the lender or dealer to have this coverage included. Usually, insurers would allow up to two years for this coverage to be added. It may be the case that owners offer their autos as security even though they bought it cash.
Cancelling Gap Car Insurance Coverage
Obviously, it is an additional cost and you can cancel it if you have paid off the loan. In some cases, your lender may allow you to drop this cover if you don’t have a chance of being upside-down on the loan anymore. This is something you need to discuss with them. If you go ahead and cancel it on your own, they can ask you to include it again. They can also buy forced coverage which would be much more expensive. And they would add the costs onto your loan or demand payment immediately.
If you have a loan you will also be required to keep Collision and Comprehensive Coverage. Normally, you cannot drop them or increase deductibles over $500 unless you pay off the loan. When your automobile reaches certain age and valuation, it may work out better to pay off the loan and drop all the additional coverage required.