FP Story - Gap Insurance

"Censored" (chrisbrown2992) 07/23/2018 at 11:03 • Filed to: None

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I figure most folks know this already, but when you have an outstanding loan on a vehicle that you could potentially be upside down on during the course of the loan, carry GAP INSURANCE. I’m not an insurance salesman or even remotely educated in insurance, but the basics are the insurance company will cover any “gap” between what you owe and what the value of the vehicle is.

With loan terms as crazy as they are now a days, it is even more important.

Also make sure that you have good uninsured motorist coverage, this is another often overlooked coverage that can burn folks.

Lastly, how on Earth can you be “significantly” upside down on a 6 y r old vehicle that probably didn’t cost 20k and is still likely worth 5-6k. That’s 72ish months worth of payments on a new car that you still owe multiple years on. The article says that it would take 3 years to pay back half the remaining balance (insurance is paying the other half) , simple math says this was a 12yr term loan, what the crap. People’s financing decisions on car purchases amaze me.

Ash78, voting early and often > Censored 07/23/2018 at 11:20

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Also, gap insurance often gets a bad rap for being too expensive. Last I checked, a lot of places will insure the gap for the life of the loan for under $300 (and that amount can be rolled into the loan, somewhat ironically).

When I sold cars, it was one of the old things that sold itself — especially for anyone putting very little money down, or financing over a long period of time.

CarsofFortLangley - Oppo Forever > Censored 07/23/2018 at 11:21

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As someone who works in insurance, I really have no pity for this kinda stuff. Every news story about someone who’s house burned down with no insurance coverage, shit gets stolen or whatever.**

There are products for purchase that will financially protect you.

**I recognize that there are those who really cannot afford insurance, and I sympathize for them. I mean more people like the Kia owner who buy jewelry , cars or a home and decide to try and save $100 a year or whatever.

Censored > CarsofFortLangley - Oppo Forever 07/23/2018 at 11:29

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Don't buy what you can't afford. That's clearly what happened here still upside down on a cheep 6yr old car.

I like cars: Jim Spanfeller is one ugly motherfucker > Censored 07/23/2018 at 11:32

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I figured it was bought/financed used. Still makes no sense.

nermal > Censored 07/23/2018 at 11:35

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It’s really hard to tell without seeing the contract the consumer signed, and what was on it.

Since they mention having a “full warranty”, they probably bought some form of extended warranty with the car, which can add $2-3k to the price. They may have also bought other crap, like coverage for tire & wheel or “paint protection” or pre-paid maintenance. When I bought my last vehicle I was offered about $5k worth of extras in total.

Assuming this person was dumb and bought all of that (but not GAP coverage), that will make up for a significant portion of the balance owed. Plus, unless the manufacturer takes responsibility for the fire, this is a comprehensive insurance claim. They’ll pay a low-balled market value for the car.

Mercedes Streeter > Censored 07/23/2018 at 11:35

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The article didn’t indicate whether she bought new or not. I bet she bought used with a really bad interest rate.

I don’t have gap insurance on any vehicle in my fleet. The only vehicle that’s tied to a lien is basically my “museum piece” and that only leaves the garage to keep the fluids, rubbers, and battery in check on “special occasion” drives. And by now, it’s worth more than the remaining balance of the loan because of its perfect condition.

But yeah, if you can afford it (and having come from a family with money problems so chronic that the credits and bank accounts of the kids a re pillaged as soon as they turn 18, I’m not going to shit on someone who can’t afford it ), get gap coverage.

And generally be smart before you sign the dotted line. Sometimes used car loans can get so aggressive that you’d be better off getting a new car . That’s how I ended up with two new smarts.

The Ghost of Oppo > Censored 07/23/2018 at 11:35

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Did the article say she purchased it new? Could she have gotten taken for a ride by a used car dealer ? I’m thinking she had to roll some debt from a previous car into the loan of this one.

Alfalfa > Censored 07/23/2018 at 11:36

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I n all fairness, just just re-read (okay, re-skimmed) the story and see no m ention of when she purchased the vehicle, you just assumed she's the first owner. She could have bought it 1 or 2 years ago used.

Stapleface > Censored 07/23/2018 at 11:36

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Yeah, I was reading that story and was trying to figure it out.

Either they weren’t the original owner, or they rolled an incredible amount of negative equity into the current loan, or both.

GAP is a no brainer for me, especially the last time I bought a car as I rolled a bit of negative equity into my current car. I’m no longer upside down, thankfully, but GAP just makes sense. And, most of the time when I’ve been negotiating with a dealer, I’ll make throwing in GAP a condition of sale.

The only time GAP won’t help you is if you have a similar situation as my sister. She totaled her new car after making two payments on it.  Problem was, she put like 5k cash down which she couldn’t get back since that wasn’t financed. 

Wrong Wheel Drive (41%) > Censored 07/23/2018 at 11:44

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I cannot imagine taking such a long term loan. I have a two year loan on my car and that makes me anxious thinking about how many months I could make it if I lost my job or something. It's an unlikely scenario but something I'd love to not worry about by just paying off the loan quickly. 

Party-vi > Censored 07/23/2018 at 11:47

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I got gap insurance on my 2017.5 Mazda 6 because I’m putting 20K miles on it a year, which means I’ll be pushing 100,000 miles after I pay it off.

LongbowMkII > Censored 07/23/2018 at 11:52

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Interest is a bitch

My bird IS the word > Censored 07/23/2018 at 11:57

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I asked, apparently geico doesn't offer gap insurance

facw > Censored 07/23/2018 at 12:02

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Absolutely. I assume they got a bad deal when they bought it (easy to imagine if she has bad credit), got bad loan terms (also easy to imagine if they had bad credit), and then it depreciated like a Kia, leading to them being well underwater.

merged-5876237249235911857-hrw8uc > Wrong Wheel Drive (41%) 07/23/2018 at 12:03

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2-3 years at least normally keeps you from being upside down for too long.  3 years is our limit.  Then we typically pay off early once the balance is low enough.  Works out nicely, and then the vehicle actually has some value once it’s paid off.  

RallyDarkstrike - Fan of 2-cyl FIATs, Eastern Bloc & Kei cars > CarsofFortLangley - Oppo Forever 07/23/2018 at 12:33

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I don’t understand why somebody would go all out on such an insane loan on a new car when they could get a very decent used car with probably most of the same features for FAR cheaper...

Long-Voyager > CarsofFortLangley - Oppo Forever 07/23/2018 at 12:33

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How many of those “people” have $500/month phone bills?

CarsofFortLangley - Oppo Forever > Long-Voyager 07/23/2018 at 12:35

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One of our clients, a legitimate billionaire (I won’t disclose who) will personally complain about his auto rate changing and declined flood insurance for his waterfront property.

BrianGriffin thinks “reliable” is just a state of mind > Censored 07/23/2018 at 12:36

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As others have said:

Probably purchased used, let’s say for $12,000 + fees. Out the door, with a warranty (lol @ aftermarket warranties), bet she was financing at least $15k not even taking into account any possible negative equity.

I’m going to estimate 13% interest for a 60 month note.  Two years in, shed still owe about $9500ish on that note.  Less the likely $4500 insurance payment, and well here ya go.

Wrong Wheel Drive (41%) > merged-5876237249235911857-hrw8uc 07/23/2018 at 12:42

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Mine is a used subaru so I moreso hope it doesnt explode in the mean time lol. At least I had it inspected ahead of time and all of the major issues were fixed before I bought it. And since these cars dont really depreciate, that will help for sure. Pretty sure it might actually appreciate considering how low I bought it for. 

Censored > Mercedes Streeter 07/23/2018 at 12:45

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If they bought used, they should have been on the correct side of the depreciation curve further making me question how someone would accomplish this.

Censored > nermal 07/23/2018 at 12:47

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Does gap not cover a comp claim?

Mercedes Streeter > Censored 07/23/2018 at 12:58

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One of those subprime “if you miss a payment we turn off the car” loans could probably do it.

fintail > Censored 07/23/2018 at 13:29

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When one examines on the amount of financial education in the American (and others, no doubt) K-12 system, not surprising.    It’d be hilarious to do a “Jaywalking” type show and have people explain compound interest.

deekster_caddy > Censored 07/23/2018 at 13:31

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But GAP insurance isn’t necessary, assuming she has comprehensive insurance coverage (usually required while a vehicle is under a lender). She should be receiving an insurance check for replacement value of the vehicle, with which she can replace the vehicle with something similar. Nothing changes regarding her (underwater) loan. She still has the same payment terms as before. If the insurance check isn’t enough to replace the vehicle, you take that up with the insurance company. It’s very common for them to come in low at first, then adjust up after you complain about their ‘fair market’ assessment.

nermal > Censored 07/23/2018 at 13:43

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GAP should cover it, unless there is a cap in payout on the GAP coverage.

From the sound of things this person didn’t purchase it though, and bought some kinda extended warranty instead.