Here are some auto financing and purchase numbers for 2019, according to Lendingtree:
- The average monthly car payment in the U.S. is $550 for new vehicles, $393 for used and $452 for leased
- Americans borrow an average $32,480 for new vehicles and $20,446 for used.
- The average price of a new, light-duty vehicle is $38,948. Average used car prices are nearly half — $20,683 as of Q3 2019
- The average loan term is 69 months for new cars, 35 months for used and 37 months for leased vehicles.
The bottom line is that American car buyers as a group are financing higher amounts and purchasing more expensive cars.
And if you’ve purchased a new car recently you know that once you’re inside the finance office a wave of unexpected purchase options are pushed. Options such as paint protection, scratch and dent coverage, gap coverage, and tire plans are just a few examples.
My purpose today is to look at gap coverage. For starters, gap coverage is almost always cheaper through your insurance carrier than a dealer. Ask your auto insurance provider or Independent Agent before signing your paperwork!
What is Gap Insurance?
Simply put: gap insurance covers the difference between what a vehicle is currently worth (Actual Cash Value) and the amount you actually owe on it.
For example, let’s say a deer stops in the road and the resulting damage to your vehicle is severe and deemed a total loss. Your auto insurance carrier will pay the actual cash value of your vehicle at the time of loss. Remember, cars depreciate quickly and most cars lose 20 percent of their value within a year.
So your insurance carrier pays you $25,000 for the vehicle but you still owe $35,000 to your finance company. Now you have a gap of $10,000. This is where gap insurance comes in and pays off the difference.
When To Consider Gap Insurance
According to the III (Insurance Information Institute) you may consider gap insurance if you:
- Made less than a 20 percent down payment
- Financed for 60 months or longer
- Leased the vehicle (carrying gap insurance is generally required for a lease)
- Purchased a vehicle that depreciates faster than the average
- Rolled over negative equity from an old car loan into the new loan
If your car is not finance then you don’t need gap insurance.
How Much Does Gap Insurance Cost?
Not a lot. Depending on your vehicle and coverage situation it can be as little as $20 a year!