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Dec 11, 2008 -- Gap insurance saleswoman chats up Clark
During a recent flight, Clark was talking with a seatmate who sold gap insurance for the automotive industry. The woman was talking about how people borrow so much on their cars, and how the great service she sells helps them if they're upside down in their vehicle when it's stolen or destroyed.
This woman had the solution to a problem that you shouldn't let happen in the first place. You should not buy a car with no money down because of the rapid level of depreciation. The average auto loan is now 63 months long. So it's very difficult to close the gap between your rapidly depreciating car and the value of the loan you've taken out.
The right way to buy a car is to save money first. Of course, it's probably unrealistic to think that you can pay for a new car entirely in cash; only 1% of Americans are able to do so. By saving a down-payment of 20%, for example, you can have a shorter loan and pay less interest.
So you can eliminate the need for gap insurance if you do things right from the start.
Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.
how can you find out if you purchased GAP insurance or not?
20% Down may not be enough....
GAP Coverage, when introduced in the late 1980's was initially designed to protect the consumer from the rapid depreciation of new automobiles. This was when lenders required at least enough of a down payment to limit the loan amount to the vehicle sales price, usually capped at the vehicle's MSRP. Rarely did they approve loans that included the negative equity of the vehicle being traded in. GAP was an inexpensive product because of the limited exposure of negetive equity caused by unforeseen rapid depreciation. In recent years (prior to the latest economic downturn), lenders were extending credit that far exceeded 100% of the MSRP or selling price by as much as 40 to 50%. Unfortunately, GAP was now being used to cover losses caused by bad lending practices, not the vehicle depreciation that it was originally designed for. The result has been the increased costs of GAP premiums and several GAP carriers exiting the GAP marketplace.
Clark, remember...how you pay for your vehicle has no affect on it's current value or its depreciation...the only guaranteeed savings is the amount of interest you pay on a shorter term or lower loan balance. Do you remember the Audi models of the mid 80's that depreciated $10,000 in 60 Minutes?
get real people
1% can pay cash for a vehicle. The other 99% HAVE NO MONEY to put down on a vehicle. Since they have no money to put down they are in a negative equity situation right off the bat. If your insurance company is going to charge you to have Gap coverage there is a problem. They should cover it from the start. Not charge you extra for it. If they are not going to cover the whole loan, then you better get gap from your dealer because the insurance company will most definitely not cover the whole amoount.
GAP Protection
While some credit unions may offer GAP for free, nothing is ever completely "free". They normally make it up somehow, whether it be in the interest rate, other back end items or other stipulations. Insurance companies may also offer GAP protection at lower prices. Once again, cheaper doesn't always mean better. Keep in mind that insurance companies will always do what they do best...find every reason not to pay. I've always purchased GAP from my dealer because it makes sense. Just don't over pay for it.
GAP Insurance
My credit union gives its members GAP insurance free if you finance with them.
gap insurance
my car/home ins. co. offers the gap ins. FREE if you finance with them...pehaps they make it back on interest , but it's worth thinking about
Gap Insurance
It's much cheaper to buy gap insurance from your car insurance agent. The policies the dealers try to sell with the loan will often have a huge mark-up!
Gap Insurance
To Wade - easier doesn't make it better. Save and buy used in cash or a 3-year loan max.
Gap Insurance
It is much easier to pay the low monthly for gap than to save 2-3000 for a down payment on a car.
