Gap insurance helps protect drivers in case of an accident or collision when they owe more on a car than the vehicle is actually worth.
If you are purchasing a new car and want to roll in any negative equity from your trade-in vehicle, it is important to consider gap insurance. What is it? What does it cover? Gap insurance is also known as gap protection and it covers the difference between what you owe on a car and what the car is worth. This discrepancy can occur in a number of situations and by having gap insurance you can prevent a lot of frustration, hassle, and expense if you do happen to get into an accident. Depending on your circumstances, it can be a very important protection.
Understanding Gap Insurance?
Gap insurance can be a mysterious concept to many drivers, but it is really very simple. Basically, gap insurance protects car owners in case something happens to a car but the owner owes more money on the car loan than the vehicle is worth. In this case, if a car is totaled, the owner will receive the value of the car from the insurance company and then receives additional funds for any amount they own in excess of the value of the car.
4 Reasons You Need Gap Insurance
Gap insurance is something important to consider during the purchase of a car if you are financing a loan and there is a chance that at some point during your loan you will owe more money than the car is worth. When this occurs it is called “negative equity”. There can be many different causes for a situation like this which include:
- Car value depreciation. Cars lose their value over time and some vehicles may decrease in value faster than others. It is important to understand what the value of your car may be in the first few years following your purchase.
- Financing more than the value of the car. Sometimes car buyers will roll negative equity from a former car into the loan for a new car. While this may make sense financially for the buyer, it still can put them at risk without gap insurance.
- Low or no down payment. The lower your down payment is, the more you will have to finance in a loan. If the amount you finance is higher than the value of the car at any time during the loan period, you are at risk without gap insurance.
- Extended Loans. These days, there are many options for buyers regarding loan terms. Drivers may be approved for a loan on a 48-month, 60-month, and even 72-month basis. If a buyer opts for a longer loan term, they are paying off a lower portion of their debt each year and may at some point owe more than the vehicle is worth.
When customers come to purchase a new or pre-owned vehicle at Santa Barbara Auto Group, we ensure they have the opportunity to sit down with a finance representative to discuss their loan and insurance options. Our finance representatives will walk buyers through their options, letting drivers make a more educated choice about their purchase. Drivers can learn more about gap insurance options from a qualified finance representative with Santa Barbara Auto Group.
About Santa Barbara Auto Group
Santa Barbara Auto Group is located off the 101 and Hope Ave and serves Santa Barbara residents and drivers throughout Southern California as the premium dealer for Acura, Audi, BMW, Jaguar, Land Rover, Porsche, Mercedes-Benz, and Smart. Every Santa Barbara Auto Group employee is dedicated to providing the highest in sales and service assistance. Santa Barbara Auto Group represents eight different luxury brands and friendly experienced sales representatives are available seven days a week. To learn more about your favorite luxury vehicle, or to schedule a test drive, feel free to call, email, or visit Santa Barbara Auto Group.