What is Gap Insurance?Gap insurance, also known as ‘vehicle equity insurance’, is a very popular form of insurance protection for car buyers with finance. Basically, in the event of a write off, gap insurance helps pay out any shortfall between the market value of the car that your comprehensive insurer may pay you, versus the total payout owing on your loan.
Why is Gap Insurance a Good Idea?
Many borrowers who have comprehensive car insurance think they’re ‘covered’ for all possible scenarios , not realising they could be out of pocket by many thousand dollars if they write off their car. Gap insurance is a good idea because the amount owing on your loan includes interest costs and can be a lot higher than the insured value of your car at the time of an accident. If your car is written off for whatever reason, your insurer most likely won’t pay enough to cover the payout figures owed to your lender. For example, if you borrowed $30,000 for your new car, 2 years into your loan term your payout figure, including all fees and interest charges, may be $25,000; yet your comprehensive insurer may only pay you depreciated market value of $20K, leaving you with a ‘gap’ of $5,000. The ‘gap’ insurance will cover that $5,000 shortfall for you.
Is Gap Insurance Right for Me?
Gap insurance may not be the best choice for all drivers. However, in the event of a new car being written off only a few years after purchase, it may be a cost-effective solution. It will largely depend on the type of vehicle you buy, how you use it, and how much you initially pay for it, and how much you borrow for it.
In any case, it is always worth looking around for the best gap insurance rates which you can precisely tailor to your own needs. Usually gap insurance is very cheap compared to other forms of vehicle insurance.
If you’re a new car owner and would like to know more about the ins and outs of financing, our team at Auto Car Loans are here to help. We have access to a number of Gap insurance products. Call us now on 1300 301 051 to speak with one of our friendly brokers.
DISCLAIMER : The thoughts and opinions conveyed on this website are those of the authors only and are of a general nature. This does not constitute financial or general advice to you from Auto Loans Group. You should seek your own independent advice from a professional which is specific to your circumstances before considering any of the items referred to in this article, including finance, insurance, and car buying.