Do Used Cars Need Gap Car Insurance?
Yes, some people who purchase a used vehicle on a loan may benefit from gap insurance. Here are a few examples where gap car insurance would benefit the buyer of a used vehicle:
Examples of Used Car Purchases that Would Need Gap Car Insurance
Example #1: Jane bought a two year old vehicle yesterday. After going home and looking up online what the value of her vehicle was, she realized that she paid more for the vehicle than it was worth. She did get a loan on her car so if she totaled her used vehicle, the insurance company would only pay for what the car is worth and Jane would have to pay out of pocket the remaining amount on her loan... unless she had gap insurance. If she did have gap car insurance then the insurance company would pay for what her used car was worth and the gap insurance policy would pay the remaining amount therefore Jane would owe nothing out of pocket.
Example #2: Lily wanted a newer car and took her older car to the dealership to see if she could trade it in for a newer model. She did just that and was able to leave the dealership with a 3 year old vehicle, much newer than her 5 year old vehicle she traded in. She did need to get a loan for the newer vehicle and her trade-in vehicle still had a small amount remaining on the loan. The dealer agreed to take care of her remaining loan on her traded in vehicle. Although Lily did not have to pay anything out of pocket for her newer model car, since the dealer essentially rolled in her remaining loan payment into the newer car payment, she owes more for her newer car now than its actual value is. So, just like the example above, if she totaled her vehicle she would owe the difference between her loan amount and the actual cash value of the car.
Example #3: Jim needed a car but had no down payment and a not so great credit record. The only place that would agree to let him purchase a newer model car was a discount "buy here, pay here" dealership. He knew these dealerships charged higher interest rates on car loans and higher prices than other used car dealerships, but he knew he could get approved without a down payment. Since he needed a car for work he decided to make the purchase. Jim did not put down any money for his used vehicle, paid a higher price for the vehicle and since his interest rate was higher, (less of his payments will go toward paying down the principle on his car) he drove off the lot owing more on his loan than his car was worth. As stated in the above examples, if he totaled his newer car then he would need to pay out of pocket the amount the insurance company does not cover which is the doller amount left after subtracting the loan amount from the actual value of the car.
As you can see, there are many reasons why someone with a used vehicle could benefit from gap insurance. Now that we see gap insurance can be very important for used car owners, there are still a few points to keep in mind when trying to find a gap car insurance policy for your used vehicle:
5 Things to Remember When Shopping for Gap Car Insurance for Your Used Vehicle:
1. Most used car dealerships may not offer gap insurance for their used vehicles but, you can find a number of online gap car insurance companies that will provide gap car insurance for your used vehicle.
2. Usually you cannot find gap car insurance for vehicles older than 8 years old.
3. Some companies will still let you purchase gap car insurance for your used car up to 24 months after the purchase of your vehicle.
4. Remember that if you paid cash for your used car then you don't need gap insurance. Gap car insurance only covers the gap between what you owe on a loan and the actual cash value of the car, so if you don't have a loan then you cannot get gap insurance.
5. Make sure you get a few quotes for gap car insurance for your used vehicle since insurance companies can vary on the policy prices and don't forget to do the figures to make sure you need gap insurance for your used car. If you got a good deal on your used vehicle or put down a down payment, then you may actually owe on your loan what your used car is worth and in that case, gap insurance would not benefit you.
