Is it worth buying GAP insurance with a car loan without a loan?

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GAP insurance is a common supplementary insurance used by many new car buyers. But if you’re a bad borrower, GAP insurance can help you too, even if you’re not financing a new car purchase.

The cost of bad credit in vehicle financing

If you have bad credit, you may not be surprised to learn that car financing can cost you a little more than a good borrower. This does not mean that dealers are raising car prices for bad borrowers – we are talking about interest fees.

Your credit rating is usually the most important factor in choosing the interest rates that you can qualify for. If a borrower with bad credit and a borrower with good credit bought the same car at the same price, it is very likely that the borrower with bad credit will pay more over the loan term due to the interest payments alone.

Since your interest can make it difficult to pay off your loan quickly, negative equity is a real risk. Negative equity is when you owe the car more than it’s worth.… This can happen if your car depreciates faster than you can repay the loan.

If you get into an accident or someone steals your car while your car is in negative position, it can be a big problem for you. Full coverage auto insurance usually only the cost of your car at the time of the accident is paid. If your car is involved in an accident, it could mean that it still owes money to your car lender if the car has negative equity, even if it is wrecked and / or unusable.

This is why GAP insurance can be helpful for those who take out bad credit car loans. GAP, or Guaranteed Asset Protection, literally bridges the gap between the value of your vehicle and your loan balance. If you are getting a bad credit car loan and want to protect your wallet, it might be worth considering.

How GAP Insurance Can Help

If your car has been stolen and has never been repaired or has an accident and you have full coverage and GAP insurance at the time, it is very likely that you do not need to pay extra out of your pocket (other than your deductible, if it is you have. ). Full coverage is applied to cover the value of the car, and the remaining loan amount can be paid by GAP insurance.

Here’s an example:

Bob has a truck that was recently measured and deemed unsafe to drive, estimated at $ 15,000 at the time of the accident. He owes $ 19,000 on a loan. Bob has GAP insurance and full coverage. Full coverage paid off $ 15,000, and GAP paid the remaining $ 4,000 to Bob’s lender, successfully repaying the truck loan.

If Bob is in the same situation without the GAP, the insurance company still pays for the vehicle, but Bob still owes the lender $ 4,000 out of his own pocket.

If you are like Bob and have negative equity but do not have GAP insurance, you still owe the lender the amount you are underwater, even if the vehicle is deemed unsafe to drive. When the vehicle is counted or stolen, you still have to pay the lender what you owe in order to terminate the loan agreement.

How much does GAP insurance cost?

Should you buy GAP car loan insurance with bad credit history?Typically, GAP insurance costs between $ 20 and $ 40 per year. Yes, you read that right, for a whole year. GAP insurance is inexpensive. Often, the cost can be added to your insurance premium or monthly car payment. If you get a policy that costs $ 40 a year, you only pay $ 3.33 a month for this additional protection.

Many insurance companies offer this additional coverage, and you can usually purchase it from the dealership while you go through the paperwork with your finance and insurance manager. Auto lenders sometimes offer their own GAP coverage options.

Usually GAP insurance needs to be purchased shortly after you finance your car, or within a certain period of time. In addition, most insurers prefer to cover new cars or used cars in good condition.

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Compare $ 20-40 a year to having to pay $ 4,000 out of pocket like in the example above. GAP insurance can save you a lot of headaches, money and the whole situation of having to pay for a car you can no longer drive.

For many borrowers with bad credit who are expecting a high interest rate on a loan, GAP insurance can offer some peace of mind. It is quite cheap and many insurance companies offer this coverage. However, when you have bad credit, finding auto insurance is usually not the hardest part of the car buying process – it is finding a lender who can handle your credit situation. We want to help with this on Car loan Express!

We have built a nationwide network of dealerships over the past two decades and we want to find a dealer in your area who is willing to help bad credit borrowers. Start your journey to a bad car loan by completing our free car loan application form



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