When Should You Consider Gap Insurance for a Used Car?

Finding a good used car is frequently more difficult that finding a new car. The price savings can be substantial. A used car can provide first rate transportation for many years if it has low mileage and is in top condition. However, a used car like this can have one problem that comes with every new car; It is easy to wind up with a loan that exceeds the value of the car.

If you have a bad accident and the car cannot be repaired, you may owe more than the car is worth.

Used cars that are almost new have problems with this more than older models. When you buy a late model used car from a new car dealer, the price will be close to the cost of its new counterpart. A car with less than 30,000 miles that is only a year or so old may sell within a couple of thousand dollars of the bottom price for the new model.

Because the car is in great condition, you may be able to finance it with very little down.

The result is that you end up with a car that has a cash value lower than the outstanding loan amount. If you believe that this is your situation, you need to consider buying gap insurance for your car. This insurance will protect you from owing a lot of money on a car that you no longer own or are able to drive.

A gap policy is designed to protect you from being left with a lot of debt and no car.

The gap policy will evaluate the cash value of your car. If it is less than the loan amount, it will treat your car as if it is worth the amount of the loan. Normally, the deductible will then be applied and the balance paid to your lender. This will leave you owing the deductible amount. Most people can handle the deductible on their policy. You still will have to find another car and possibly save up a down payment, but the old loan will be retired.

Always monitor your car's value as it relates to the outstanding loan amount.

The gap policy only has value if the loan on the car is greater than the car's worth. You must check the value of your car from time to time. This is to make sure that you have not paid the loan down enough to be near the value of the car. If the loan amount is within the deductible amount from the value of your car, it is time to get rid of the gap coverage. Check with your agent to see if the insurance company does this for you or if it is your responsibility.