Tag Archives: Depreciation

Do I Need Gap Protection For My Car Loan ?

  By John | April 3, 2010 - 8:08 pm | Low Cost Car Insurance
5 Comments

Do you realize how much you are at risk financially if you wreck your car or it gets stolen? Your auto insurance policy might not provide all the financial protection you need, if the value of your car is less than the balance of your auto loan. Gap coverage is designed to cover the difference between the value of your car when it was lost and the balance of your car loan.

This is also called Negative Equity. Having to continue to pay off your car loan every month, when you don’t even have your car anymore is probably not what you had in mind when you bought it.

Let’s say you lost your car in a hurricane or other disaster, one year after you purchased your car: Now let’s say you still owe $20,000 on your auto loan and your deductible is $500. Let’s also say your car was worth $15,000 at the time you lost it. The insurance company pays you $14,500. Then your Negative Equity or Gap is $5,500.

Gap Protection isn’t really insurance, it’s a Debt Cancellation Agreement. You could call it a waiver of the part of your auto loan contract that requires you to pay the difference between the value of your car and the amount still owed on your car loan. There are a few states that do consider Gap Protection a form of insurance, but most states do not.

Is Gap Protection for you? Talk to the person considering your auto loan. Car buyers who are putting little or no money down on a car may need Gap Protection. If you are transferring the balance of previous car loans into the current car loan or taking out an extended car loan like a 60 month loan you may need the extra protection. Any car buyer who will owe more than their car is worth needs Gap Protection.

You have to take figure out the expected depreciation on the car you are buying and the rate of equity accumulation through your auto loan. This will help you figure how big a gap you’ll have and for how long.

Some lenders or leasing companies include the coverage in the agreement for the their own protection. This is common in lease contracts. The decision to buy gap coverage is easy. Deciding who to buy it from is much more difficult.

You can get Gap Coverage for your car loan from your Credit Union or another lender, online sellers of gap protection, or your auto insurance company. Each option is different, so read on before you decide on an option.

On the Internet, it’s easy to explore these options. You can do a search for the information there or go to your favorite search engine like google or yahoo and use the keywords “gap protection” or “auto loan gap coverage”. Make sure that you check out any company you find on the web before you give them your credit card information. You don’t want to end up with a provider that won’t be there to help you cover the gap in your car loan if something happens.

Your Auto Insurance Carrier: Not all insurance companies carry gap protection for your car loan. Check with your agent. Check to see if they already included gap protection in your car loan and how much coverage they gave you. You may need more than they offer. The cost of gap protection is relative to the value of your car. The more expensive the car, the more it will cost, and the more coverage you need.

Also, very important to keep in mind. Your insurance company or other provider will continue to bill you for gap protection every month. It’s up to you to calculate and decide when you no longer need it. In other words you need to know when you will be out of the hole. You need to know when there is no longer a gap between the value of your car and the amount you owe on your car loan.

The Automobile Dealer or whoever gave you your car loan is another source for buying gap protection. This is done at the time you get your car loan so bring it up right away if you choose this option. Some lenders may let you purchase it later, but it’s best if you buy it when getting your loan. As soon as you drive the car off the lot, it becomes a used car.

The cost is normally a one-time charge, typically the same set price for all customers buying the same coverage. Buyers may roll the fee into the total loan amount and include it in the monthly loan payments. Dealerships usually do not have the best rate for gap protection. You may want to choose another option. The average price for gap protection through auto dealers is about $500. You may be able to get the same protection for your car loan through your credit union or bank for as low as $250.

Make sure your gap protection also covers the deductible. Look for other features such as automobile replacement or money towards a new car in the event something happens. So don’t let just price be your guide when choosing who to buy gap protection from.

Greg Lucas
http://www.articlesbase.com/automotive-articles/do-i-need-gap-protection-for-my-car-loan–106498.html

Auto Financing, Leasing and Insurance

  By John | October 16, 2009 - 5:46 pm | Auto Insurance
9 Comments

Car Financing

Securing financing before you go to the lots allows you to have the bargaining power of pre-approved finance when searching for your vehicle. Remember that the longer you borrow the money, the more it will cost you. Try not to borrow too much and make sure you don’t borrow an unreasonable amount that you can’t pay back. Try to pay as much as you can up front – in cash or as a trade-in – and pay less interest. Several ways to get financing is via the internet (see resources), your local bank or credit union.

* How low is the interest rate?

* What are the annual fees?

* Can you make extra repayments without being penalized.

* Are you covered with the payments if you get sick or injured?

* Do you have a good credit rating?

Thoroughly investigate your loan and always make sure you look at the total cost of the loan as a higher interest rate can sometimes be better than a loan with a low rate but with a lot of hidden fees!

Leasing

Leasing enables you to lease a more expensive car than you could afford to purchase. The lessor (usually a bank or leasing company) buys the vehicle from the dealer or manufacturer and then leases it to you. You, in turn, pay the lessor for the right to drive the vehicle during the term of your lease. When you buy a car you pay for the entire price of the car. When you lease, you pay for the depreciation, acquisition fees, negative equity on a trade-in and after-market products (such as extended warranties) over the lease term.

A vehicle with a 20,000 price tag can be leased for three years with nothing down and a monthly payment of $385.00 or bought over the same period for $2,500 down and a monthly payment of $595. Sounds like a good deal but we got to remember the buyer owns the car and can claim the equity in it.

Car Insurance

There are several ways to get insurance: by phone, the internet or you can go to a insurance agent. Every policy is different and each insurer uses a different set of criteria in determining insurance premiums. Criteria for how much your premium will be is determined by where you live, age or sex and sometimes even your credit rating. Remember, the higher the risk, the higher the premium.

* Some other things they look at:

* Make, model and age of your car.

* Whether your car is driven for business or privately.

* The age of the drivers.

* Your driving record.

* Whether or not the car is financed.

* If there are any theft deterrents on the car.

* The number of miles that you drive per year.

Bodily Injury Liability:

Covers other people’s bodily injuries or death for which you are responsible. It also provides for a legal defense if another party in the accident files a lawsuit against you. Claims for bodily injury may be for such things as medical bills, loss of income or pain and suffering. Bodily injury liability covers injury to people, not your vehicle, not you or other people on your policy. Remember to review the terms and conditions contained in the policy. It is mandatory in most states.

Property Damage Liability:

Covers you if your car damages someone else’s property. Usually it is their car, but it could be a other property damaged in an accident such as a house or a fence. It also provides you with legal defense if another party files a lawsuit against you.

Comprehensive Coverage:

Covers your vehicle from incidents other than collision such as if it was stolen, fire, flood, or animals. A higher deductible can substantially lower the cost of insurance premiums but it means you pay more out of pocket if an incident happens. This is not required by most states, but if you have a loan or a lease they will require it.

Collision Coverage:

Covers damage to your car when your car hits, or is hit by, another vehicle or object other than a car. This coverage pays to fix your vehicle after you pay the deductible. This is not typically required by a state, but if you have a loan or a lease they will require it. .

Uninsured and Underinsured Motorist Coverage:

Covers when property damage is sustained by an driver with no insurance or is insured, but the limits of liability carried by the driver are not sufficient to cover the damages.

GAP Insurance:

This is insurance that pays the difference after you car has been totaled. For example your car is worth $3000.00 but you still owe $3500.00 to a lender. The Gap insurance pays for the difference.

Robert Gering
http://www.articlesbase.com/automotive-articles/auto-financing-leasing-and-insurance-90846.html