Financial Literacy Month: What is Gap protection?

Financial Literacy Month (1)

 

Gap protection can be useful if you owe more on your car than it’s actually worth, but it’s not for everyone.

But wait, how can you owe more on the car than it’s actually worth?

This usually happens because the owner’s financing terms for the vehicle cause the financed balance to decrease more slowly then car depreciates. The more you can cover out of pocket the better! But if you finance the full amount of the car, license fees, taxes and things of that nature, you’re actually financing more than the actual vehicle is worth from the start.

When would Gap Protection help me?

If you’re in an accident and your car is totaled, and you have adequate insurance you can be reimbursed for the current value of the car. However, if you owe your creditor more than the car was worth then you end up with a gap. Let’s say you still owe $6,000 on your vehicle when it’s totaled in an accident. But the actual cash value is $4,500. You’ll still be responsible for paying the rest of the $1,500 you owe. If you have Gap Protection, the remaining cost will be taken care of. When you originally finance your car, if you come prepared with a solid down payment that will help start you out ahead of the game so you won’t need gap insurance. This isn’t necessary for everyone, but could be helpful for some.

Where do I get Gap Protection?

This is available in most states but not all so shop around if this is of some interest to you. You can purchase it as a one time fee from the dealer or if your insurance company offers it, you can consider adding it.

If you would like to read more about Gap Protection you can click <a href=”http://www.nolo.com/legal-encyclopedia/gap-insurance-car-do-you-30132.html”>here</a> for more information.

When I first purchased Buelah, I purchased Gap Protection as I did not have a substantial down payment nor an established credit history yet so I definitely owed more than she was worth at any given time. Have you decided to add Gap Protection to your arsenal? Comment or Tweet me to let me know!

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