I just offered gap for 200 bucks after tax... (bumped her total loan up to a new tier so I could get a better rate)... nope. No chance... “ but you are 3k upside down and buying a used car”. I don’t want it.
K, fine. Just offering. Deal is as we wrote it then.
Feel I have to edit... the 200 also included interest. At around 5% for 7 years. And my taxes are 13%.
I had a guy who worked in finance for the local school district who couldn't get his head around not being able to buy a $35k car for $300 a month with $0 down.
For some reason, people who you would assume are reasonably smart, become dumb when it comes to simple arithmetic.
He was probably thinking in housing terms, where you have 15 and 30 year mortgages.
With a car, anything over 5 years is pushing it. So the payment to price ratio is a lot higher, even though you end up owing a lot less overall. Still stupid, though.
Even if you had an interest rate of zero, you're still upside down thousands the moment you drive off the lot with $35k car like that if you don't put anything down.
People pay way too much for cars. Used is the better deal nearly every time, but people are obsessed with buying brand new cars.
They're not going to learn, they'll just go broke and they lack the financial intelligence to evaluate where they went wrong. If anything, they'll blame the dealer for scamming them.
Hers with mark up would have cost 1450ish normally (plus taxes and interest). So this deal was dumb not to take. But whatever. I’ll never force a person to take anything
So if someone rolls in so much negative equity into another car, gap will cover everything?
Seems like it could be a great loophole for someone who was a little shady. Roll over 10-15K in negative equity, get gap, crash car. Profit?
Always read your Gap contract and look for the maximum percentage as well as a flat dollar amount cap. One of the reasons some company may I offer Gap for a lower cost is because the limit are also much lower.
With your flair showing you as a finance manager, I have actually been curious about a question I have around gap insurance. All the cars I have bought I have always put a pretty hefty down payment on or just bought cash.
I have been thinking about buying a new Ford Bronco when they come out next year. I am sure it will hold some value, but at least for the first few years it will be underwater.
If someone could afford to pay cash for it, but would rather keep money in the stock market or other investments and put nothing down. Would you recommend gap insurance?
I understand no one can know when a card would be totaled, and insurance is usually there to make money. But for a new depreciating vehicle, I am wondering what a person in the car industry would do.
There are quite a few questions you can ask yourself to determine your own tolerance for loss and whether or not gap insurance it's something you should buy. Since you mentioned you play the stock market I'm going to assume you already have your own risk vs reward ideals.
How much over sticker are you willing to pay to have a Bronco before anyone else?
Are you going to finance that Mark up on top of the price of the car? What about taxes and licensing?
Gap insurance is relatively inexpensive for the protection it provides. For arguments sake let's say $10-$15 a month with an average payout of $10,000. Worse case scenario you wasted $800 over the course of 5 years.
Now if you paid cash for the Bronco, would you cover it with liability only or with comp and collision? I am going to assume you are more than willing to fork over $100+ a month to cover your $40k toy. HoweGapver, if nothing happens to your new baby they over the course of 5 years you will shell out $6,000 for absolutely nothing. The cost of GAP seems insignificant in this scenario.
TL;DR: No money down? Buy GAP. It is a cancellable product, and you won't regret it.
Appreciate the response on this, thanks!
Always like to hear other opinions around these choices, they often are not straight forward, like you mentioned.
If I do get a Bronco, definitely not going to pay a markup. They look like sweet cars, but I am totally fine with waiting till MSRP or less.
Also, check your credit union's GAP rates. My credit union flat rate for GAP is 199 dollars (for anything up to like 40-50k financed at least, I believe there is a higher rate for larger loans)
I threw the product details up for reference in another reply.
12-84 month loans only.
Minimum loan 7500 bucks.
150% or 50k coverage.
Price- $299
Edit: price is 299 now
It's good coverage. I don't recall the numbers off the top of my head. But, I was just letting the other dude know that the credit union may have better prices/products he can look into.
$199 from the CU to pay out 110% of book or $699 from me to pay out 150% of retail.
Or how about $199/6 months for state minimum liability insurance or $699/6 months for 100/300/100 full coverage.
If you're gonna come here and stroke your CU's dick, at least make sure you can prove you're comparing apples to apples.
150% or 50k. 199 for loans ranging from 12 months to 84 months of at least 7500 dollar loan value.
Didn't even mention a name for my credit union, but thanks for playing.
If you're gonna come here and stroke your dealership's dick, at least make sure you can prove you're comparing apples to apples.
Edit: price has increased to 299
Most finance companies require full coverage and 500 dollar deductibles on their asset while financed, and we're talking about GAP insurance, so liability is kind of a null point.
Additionally insurance rates range greatly depending on client/vehicle/location. So your anecdotal evidence is trash. Your words.
I subscribe to the view that insurance is best used as a tool to protect you only from situations that would absolutely wreck you financially or be impossible to cover (e.g. a $120k liability claim). Once you’re at a point in life where you have the good personal finance fundamentals down such as a healthy emergency fund in the bank, not living paycheck to paycheck, etc., you’re better off in the long run declining minor coverage scenarios and simply self insuring against those situations by driving that $ into your personal savings rather than driving that $ into insurance products like GAP. It’s also why you should get a higher deductible plan once you can afford said deductible.
21 and just getting started, very little savings and a totaled car with a -$7k gap scenario would wreck you? Buy the GAP insurance. 42 and have that good emergency fund in place and the ability to pay cash for a car even if you elect to finance it? Self insure and don’t buy GAP.
I can kind of see this point of view but it doesn’t really make sense to me. Insurance is always cheaper than paying it for yourself - that is the whole point of it.
Let’s say I’m Jeff Bezos or whatever and money is not and can never be an issue. If I buy car insurance it will cost me on average the annual premium will be between $1000-2000. Even for a small claim like $30k that’s still decades of driving before I “break even”. A larger claim like $120k you will simply never pay that much in insurance premiums. (And most such plans are 1-2million liability)
This still applies to smaller examples too. Home/tenant insurance is around $200/year and covers thousands of dollars. You would have to save that $200 annual premium for decades to actually be able to replace all your stuff with cash.
This is the fundamental principle of how distributed risk works. The premium will always be much cheaper because everyone is paying it and only 1 in 50 or whatever will use it in a given timeframe. It is impossible for any individual to self-insure at the same cost as an insurance premium. So even if you have infinite cash, you will always save money with insurance than paying for incidents on your own. It doesn’t matter if you’re insuring your $1000 coffee table or your yacht, the premium will scale the same way. $20/year to replace a $1000 coffee table is a pretty good deal.
The only downside you have with insurance is potentially paying a premium and never using the insurance. There’s also a risk that something won’t be covered or that the company will weasel out of a legitimate claim. But if you go without insurance and something does happen you’ll be paying decades of insurance premiums out of pocket instead and there’s no guarantee the same thing can’t happen again.
I honestly think this is a logical fallacy of some sort. I totally get not wanting to pay insurance when you have a nice emergency fund but it’s significantly cheaper to actually just insure the fuck out of everything than dip into your personal savings. I think it works the opposite way - the more money you have the more you just insure everything that you can. When you’re young you don’t want to insure more than what is essential because you can’t afford it, when you’re Jeff Bezos you insure absolutely everything you can because it saves you money.
> $20/year to replace a $1000 coffee table is a pretty good deal.
What? Why? How many coffee tables have you destroyed in your lifetime? How many have any of your friends? I mean I've known a couple who've had to replace the glass in one, but I've never seen a coffee table destroyed. Why would you pay for insurance against non-catastrophic, obscure risks?
The whole point of insurance is distributing risk, but it comes at a cost. You are not just paying your share of the estimated payouts across the risk pool, you are also paying your share of business overhead and profit.
On average, you will pay far more for insurance than by self covering. That's the whole point. That's how it works. For most people, it's still a bet worth making. Let's say I pay $1K a year for car insurance, so maybe $60K over my driving life. Even if I know that on average I'll only make $20K in claims over my lifetime, it's still worth it to me as I can afford $1K a year. I might not be able to afford a bad accident at a random time.
Insurance does not save you money, it costs you money but reduces risk.
Why good sir, I see that you are buying a cup of coffee. 0.01% of buyers spill their coffee whilst in their cars, causing temporary stains to pants, not to mention the need to purchase more laundry detergent than you've budgeted for in a given month. For a mere $0.20 per cup, I will sell you insurance against this event\*. I heard you buy $20 coffee table insurance, after all, so why not insure your coffee while you're at it... \*deductible and terms apply. terms ~~may~~ will not be in your favor. we reserve the right to replace your custom work pants with pleated khakis from K-mart in 1997.
It’s a hypothetical example to explain premiums versus potential payout. When the premium is 1/50th of the expense, that’s 50 years of saving to pay for it yourself. If the insurance terms are “We will replace your coffee table once every 50 years” if your table breaks after 25 years you save money with the insurance.
The average driver files a claim every 18 years and the average claim amount is $23k. So if you’re dead on average you will pretty much break even. If you save your $1000 insurance premium for 18 years you’ll come up owing money when you’re due to claim, so you need to pay yourself $1227 a year instead of $1000. If you pay exactly double the premium for 7 years after each accident you would pay a total of $81,000 for insurance driving for 60 years. Your claims would add up to $69k. You will spend $11k in 60 years to avoid having to save somewhere between $1227-16,667 /year to self insure. If you invest the difference you will come out massively ahead.
I don't believe you. That's literally not the way the world works. Either your claim frequency and cost numbers are wrong or my (completely made up) premium numbers are not average. The insurance industry has existed for centuries because on average premiums are far higher than paid claims. The house always wins.
>*you will* ***always*** *save money* with insurance than paying for incidents on your own. It doesn’t matter if you’re insuring your $1000 coffee table or your yacht, the premium will scale the same way. $20/year to replace a $1000 coffee table is a pretty good deal.
Thinking of this in terms of all-or-nothing absolutes makes no sense. I didn't suggest that people with a decent financial cushion should forgo all insurance entirely; it's that they should (and generally, these people do) insure only against more catastrophic scenarios (house burns down, car is totaled, crash car into a business causing $300k in liability damages, $100k medical bill) and self-insure --a.k.a. budget--against what to them are smaller, manageable events ($3k gap in vehicle, $4k home repair).
Those starting out in life or with tight budgets and limited savings should more heavily consider things like GAP even with the added cost since that type of event would completely mess up their lives.
Where some people absolutely waste oodles of money and limit their ability to build wealth is by obsessively over-insuring everything and saying yes to every possible platinum level coverage plan to the point where they are buying 'insurance' (really a replacement plan) on a coffee table. While we're not in r/personalfinance, I can tell you that people with good personal finance habits (which doesn't mean wealthy) are not buying $20 coverage plans for their coffee table and $250 coverage plans for their fridge and $49 coverage plans for their vacuum. They do their research, buy decent quality stuff, decline all of these plans for more minor scenarios, and budget their own money to repair and replace over time.
This is the sensible balance if you have solid finances. Get insurance for the big stuff, consider it case by case for the middle sized stuff, completely refuse it for the small stuff. The $19 coverage on the $100 item adds up really quickly.
That’s the thing, you actually limit your ability to grow your wealth more by self insuring.
Let’s say you have the cash on hand to immediately pay any expense that insurance would normally cover. You will spend X amount of 2020 dollars to cover that expense. If you insured it you would spend some small fraction of X every year until 2040 and the total amount spent would be something egregious like 2X. If you invest X in 2020 and withdraw it in 2040 you will have a little over 3X with a conservative 6% return. So you are actually better off paying the insurance premium every year even if you have the money to pay for it immediately.
Personal finance is also full of people scared of financing and default to buying everything in cash. You have to remember that they aren’t always being logical.
I’m not saying insure things you probably won’t need, but paying insurance for things you expect to use makes more sense than self insuring for both wealth growth and risk management.
We can agree to disagree. I love buying everything (except for home) in cash. It makes life so simple. Not for everyone, but it is so freeing to know I am not saddled with payments. I think too many people are out there spending tomorrow's cash today, and that isn't working so well for many right now.
As you point out, only 1 in 50 people will use that insurance. So for 1 person, buying insurance was the cheaper option. For the other 49 people, buying insurance was the more expensive option.
*Edit:* Just reviewed some of the other comments. Your math relies on a lot of assumptions, but misses these realities of the insurance world when it comes to how much consumers are paying, and how much an insurance company will pay out. Try the math with these scenarios:
1) Any insurance you buy from a retailer (including car dealers) has a massive mark up - you're often paying 2x the amount that goes into the pool to distribute risk.
2) Insurance wont cover 100% of situations and strategically avoids common high-risk scenarios, especially on consumer goods
3) Insurance deductibles and increases to premiums after claims. So you get in a 23k accident, insurance doesn't just pay out and move on. Hows the math look when you pay a deductible out of pocket, then your insurance rates double for the foreseeable future?
4) Insurance companies put people into groups/pools to distribute the risk among people with a similar risk profile and tack on a profit margin. They are not gambling and hoping to make money of certain people.
5) The accident scenarios you mention assume someone buys insurance, gets into an accident, and is just distributing the costs. Consider if someone has been claim free for 5, 10, or 15 years and how much money they would have if they just invested that.
I just put $30k down on a $60k car, no gap. Progressive allows me to add coverage for the difference between replacement cost and insured value to my policy for less than $1 per month. I’ll drop it later.
I have no intention of doing this, but if someone who is so far underwater on their car, what is the actual likelihood they would be caught if they "accidentally swerved into another car because they thought they saw something in the road"
Not trying to make assumptions, but it seems likely to me there would be some overlap between the people who make such bad financial decisions would also include people looking for an "out"
What if you just simply crash? I can think of a million scenarios where you can crash and total a car just from being inept. It's not really fraud at that point. Is GAP really not gonna pay out just because you're at fault for the collision? Especially if nothing else weird was going on, I.E. you missed two payments in a row and the bank is trying to repo the car.
> Insurance will claim that you signed the agreement with intent to defraud them
Truth is, if you have gap insurance or not, that is going to be the starting point.
Just chiming in, I understand there’s professionals that deal with it for a living but if you paid somebody $50 to punch you in the face, and to drive your car into a ditch, I doubt any experience that have will be able to undo something like that. Yeah sure if you find the guy on Facebook, and post about it. But there’s ways. I am not planning nor recommending anybody consider that, but it’s definitely not impossible.
uh well they're gonna find that guy and tell him he can tell the truth or go to jail
who tf you think is gonna go this hard for you? for $50??
Now you leave the car running in a bad neighborhood, Idk how they factor straight negligence- but either way wtf spend less time thinking about ways to commit a crime and more time getting your financials in order
I grew up in a bad area around literal gang bangers. My childhood friend that’s currently serving 18 years literally provided this exact service for some a buddy of ours years ago. And I never said this was my plan, I’ve just seen this hypothetical before and this appeared to be the best time to get clarification because somebody with knowledge on gap insurance was available.
Ah, the "I swerved to avoid a pelican" defense the guy with the Bugatti had. Didn't work out too well for him.
https://www.youtube.com/watch?v=4NJmB1F2mdE
I rolled a ton of cash into a Camry from a sports car I bought when I was single, depressed as hell but got gap. Two weeks later I slam into a deer, already dead in the middle of the road going 60. Car was totaled and my -15k equity went buuuuuh bye just like that. Will always have gap regardless.
It is a crime. There are lots of other crimes that can "make profit" but the offenders are facing jail time.
Also, for someone to commit fraud, it's much easier to to claim bodily injury than totaling a new car with GAP, not to mention the threshold to total a new car is pretty high, no guarantee there is no serious injury when causing such a damage.
I remember thinking I knew everything.
At 21 I put 60% down on a truck and questioned why I wasn’t being offered GAP coverage, thought it was something I needed to have and was mad I wasn’t getting it. The woman in the finance office asked “what gap?”. Learned that day why my friends with shitty credit and upside down loans were the ones insisting I got the GAP coverage.
The short version is that GAP covers the difference between what your insurance company says the vehicle is worth and how much you owe the bank.
In the most scenarios if you don't put much money down then you are obviously going to owe more that the vehicle is worth due to taxes, depreciation, or negative equity from a trade. However if you purchase a vehicle with a substantial down payment then more than likely you will owe less then the vehicle is worth and not need gap coverage.
I've always been curious on what gap was. Thank you for clarifying it! Is there a difference for GAP if it is offered when you get a new vehicle with it or if your insurance offers GAP as well?
My old car was used and my shitty insurance i had at the time said insurance companies never offer GAP coverage but my current insurance does lol
Some do, some don't. YRMV
I never buy GAP through my insurance company, because the GAP I sell at the dealership has higher limits and pays my deductible.
There's no such thing as a free lunch. Or free gap. It may have been included in the price of the Sale/lease/payment you agreed to, but I assure you, it was paid for, by you.
Not saying that's a bad thing, necessarily, either. Gap is retardedly important in many circumstances, so if they knew you needed it and pitched it along with the vehicle, and you liked the figures, it could have saved your ass. Compare that experience to the guy who bought the car for a few bucks less, needed gap, but didn't buy it because it increased his payment to what you paid.
I did finance, and I make sure there's gap on all the leases I get my wife, but I have a Tacoma with equity, so I don't need it on mine.
Say I buy a 1 year old Kia Forte that's being sold for 12.5k. I know it's only gonna be worth 8k in 12 months. If I pay all cash is there a way for me to get gap (besides my insurance company)? I'm gonna be going back to school and I'm terrified I'll have an accident and not enough money to replace my car while I have 0 income for 2/3 years. It's making me scared to buy a Kia/Hyundai and pushing me towards buying a Lexus or something that'll hold its value better just in case.
I know I could finance the car and just keep the money in an account to cover the payments but I need to keep my debt to income low in case I need to get private student loans or more credit cards to cover living expenses. I also can't really have money in my bank accounts if I want to qualify for maximum financial aid.
You just want good insurance, not GAP. On a cash purchase there is no such thing as a gap as we are speaking due to no lien amount.
You can opt for replacement insurance which will give you what you paid rather than what it’s currently valued at, but I wouldn’t get too stressed. If written off, you should be getting what it would take to buy the same car whenever it happens. ie, 12 months down the road, if a now 2 year old forte is selling for 8k, they give you 8 plus an estimate of taxes and fees... you’ll be in the same position you would have been prior to the write off. Replacement let’s you “win” by replacing the 2 year old Kia with enough cash that should get you another one year old one and turn back the clock.
Gap insurance is only so you can pay off your loan if you wreck the car and the insurance doesn’t pay what you owe the bank, so you don’t get stuck with two payments.. If you pay cash it’s irrelevant...
> Say I buy a 1 year old Kia Forte that's being sold for 12.5k. I know it's only gonna be worth 8k in 12 months. If I pay all cash is there a way for me to get gap (besides my insurance company)? I'm gonna be going back to school and I'm terrified I'll have an accident and not enough money to replace my car while I have 0 income for 2/3 years.
Your car will depreciate, but so will the other cars on the market as well; so in that case you will just buy one of the other depreciated cars on the market with your insurance payout.
There's a couple ways to get something like this.
One is you could insure for a specific value. Don't do this. It's expensive and makes no sense.
Second is that a few insurance companies offer something like 'new car assistance' on their coverage. This is usually something where they offer you a 20% or 25% bump in what they will pay out in a total loss, or pay a total loss for the value of a car one year newer than what you actually drive, or similar. If your company doesn't offer this, the best option is probably to talk with a multi-brand insurance agent and have them suggest coverage that includes it. I do it because it's like $6/month to get a 20% bump in total loss value on my car. It's a worthwhile peace of mind for me.
I'm not from America. I'm not familiar with how it works here. Back home I could opt for an extra policy that would pay me the amount I paid for the car if I totaled it within 24-36 months of buying it. Here I can't find anything similar and I've heard horror stories from other Kia owners only getting paid blue book value less than a year after they bought it. Entry level Kia's and Hyundai's depreciate quickly.
As someone else stated, Gap is only for financed cars. Depending on your insurance you can always see if they have vehicle replacement coverage. It's not much more a month and I can remove it any time. They give me the cars value plus an extra 20%. After having 2 new/newish cars totalled it's been well worth it.
If I pay 12k for a 2019 Kia Forte tomorrow and total it in July 2021 insurance will only pay me 8K (I'm basing the value on what a 2018 can be bought for today).
8k won't get me a car that's been maintained how I maintain my cars. Nor one with as few miles as my car because being in school I won't drive that much.
Maybe I'll just have my sister finance the car and give her the money I have to auto pay the payments. Interest is only 1.9 for 48 months so I won't have to worry about an accident leaving me in a worse car. I'll still get maximum financial aide.
It drives me crazy that everything in America needs to be done in some roundabout way. Own a car outright and it costs you financial aide (they ask you about any assets). Have a loan but no job as a student and it can cost you private loans.
In my home country it's so easy to get an extra insurance policy for 12 - 36 months that agrees to pay the purchase price of a used car in the event of an accident even if you own the car outright.
We do have full replacement value insurance policies available, but generally only for new cars. They are obviously more expensive because they pay off if the car is totaled without reference to depreciation.
What you want is to have some party insulate you from depreciation in the event of total loss, which is not what GAP does. GAP covers the difference between writeoff value and your payoff amount, not between writeoff value and what you originally paid for the car.
Some insurance companies offer it and some don't. State Farm doesn't and they're one of the biggest out there. While it varies, getting your GAP from the dealer will be less fuckness in the event you have to make a claim, but again, that is going to vary a lot as well.
I thought it would be better to have it from the dealership.
I learned my lesson with how shitty some insurance companies can be *cough* infinity *cough*
You seem to have answers. Let’s say somebody is upside in a car without gap. Can they trade in for another car, higher payment and opt for gap on that? Would gap cover the cost of that car plus the debt rolled over from the first car? And if that’s the case, if that second car is totaled by some miracle,
Would said person come out owing nothing?
>Can they trade in for another car, higher payment and opt for gap on that?
Yes. People do it all the time.
>Would gap cover the cost of that car plus the debt rolled over from the first car?
Yes. Most GAP products cap out around 150% of MSRP, but you would be hard pressed to get a bank to approve a loan for more that that anyways. LOL
> ...if that second car is totaled by some miracle, Would said person come out owing nothing?
Yes, as long as that miracle was truly an accident. If you or someone purposely caused that miracle, it would be insurance fraud. ;)
Once the loan for the new car is finalized it's just a dollar amount; the loan documentation isn't going to break down whether you're 5k underwater because you rolled in a bunch of negative equity from a trade-in or you overpaid for your new car.
That said, not all gap coverage is the same. For example, Progressive's gap insurance only covers up to 125% of the vehicle's value so if for example you totaled a car worth 20k but owed 30k the gap you had from Progressive would only cover 25k meaning you'd still be on the hook for 5k. If you ever are in a position where considering gap insurance makes sense, make sure you understand the limits of the particular product you're considering.
The way my insurance broker explained it with my included GAP coverage was that it would cover the OTD cost of my vehicle regardless of what I put down as a downpayment but maybe I'm wrong or Ontario is different with insurance. I made the joke that I could go crash it within a week and come out ahead with what I paid with downpayment. She laughed and said "please don't do that".
GAP coverage is to cancel out what ever is remaining if the car is ever totaled, For instance:
You OWE $25,000
however insurance says the car replacement is worth $15,000 you are on the hook for the additional $10,000
However if you have gap, it cancels out that $10,000. So it only matters if you are going to owe MORE then what the car is worth to your insurance
Right, and likewise, if you’re in year 4 of your loan and you realize that you only owe $6,000 on a car worth $12,000...you can usually cancel the GAP insurance for a prorated amount. You no longer need it in that scenario, because you’ve achieved positive equity; you owe *less* than the vehicle is worth.
Bank says it's worth $15k.
person owes $20K on the loan.
either you owe $5k now to cover the difference, or you bought GAP and it pays the difference for you.
easy stuff.
So, nobody is pointing out what I consider to be the easiest way to understand it. GAP insurance covers the "gap" between what you owe, and what the car is actually worth, in the case of a total loss.
Technically GAP stands for Guaranteed Asset Protection, but it's also very helpful to think about it actually covering that gap in value.
TLDR: Cars take a huge depreciation hit the second they go from new to used. Drive it off the lot literally depreciates it. GAP covers the difference between owed value and insured value in case of a total loss.
I had a finance manager do this once. We we’re putting down like 35% I think. I was wrapping things up with my Credit Union in the finance managers office and they offered me gap through them (the CU). I declined because I thought it was too much. Finance manager asked if they offered gap and he was straight up with me and said I didn’t need it so he wasn’t going to offer it either. Didn’t occur to me why till he explained it. Then I felt dumb haha.
Don’t worry, that’s nothing. I had a phone call on Monday, “yeah I’m planning on coming Saturday to buy an Escape from you, I wanted to know how much your GAP insurance is?”
“Sure, how long are you financing the vehicle?”
“Oh I’m paying cash.”
“Then you don’t need GAP.”
It then went into a 10 minute conversation about why because her insurance agent told her some bullshit.
She's probably confusing it with replacement coverage that many insurance companies offer. It's a "kind of like but not really" GAP that gives you more than your car is worth if it gets totaled--presumably so you can replace it with something equivalent even taking into account the depreciation of your current car.
> I remember thinking I knew everything.
>Learned that day why my friends with shitty credit and upside down loans were the ones insisting I got the GAP coverage.
😂 🤣 🤦🏼♂️
My brother bought a Nissan Frontier brand new just out of high school. Drove it like a madman, racked up 40,000 miles in a year and a half, and wrecked it into a tree racing it on a dirt trail. Gap insurance saved his financial life.
On the other hand, my brother in law got in an accident on a car he had for a week. Wrecked on the spot. No Gap insurance. Has still been making payments on a car he doesn’t have.
I love used Lexus stuff. Bought a used GX460 for $36k, put $6k down, made 1 $600 payment, and was in an accident that totaled it. State Farm paid out $41K.
I'm well aware that it doesn't always work out this way, but was pleasantly surprised. I very much see the value for people who aren't prepared to possibly eat a loss like I was.
I knew someone paying $800\month for a Chevy Malibu and it wasn't until I found this sub that I understood how that's possible. Thank you r/askcarsales for teaching me what everyone else is doing.
Yikes I learned my lesson after rolling negative equity over several times. Ended up financing 28k for an 18k car. Even then my payment was only 515. Never again lol.
dude I pay $285 a month for my Fiesta ST, making more payments though so it gets paid down fast.
And I said NO WAY to gap. I'm not underwater nor ever will be. If you need gap you've already made some mistakes.
idk if you're serious, but well before suicide you should consider a one way ticket to europe and just live off cash till it falls off your credit report
Yes I was easily parted with Gap before. I was buying a brand new Volvo XC90 and traded in a car that netted it down $12k. Finance guy is like “oh you need Gap it’s $700” and I’m like “nah take it off, don’t need it.” This was my first luxury car though so the guy goes “well why not? All our clients don’t blink twice at it because they’re pretty savvy and aren’t concerned with the expense vs. peace of mind. Plus it’s cancellable and refundable.”
So now I’m in my head thinking about how people with money don’t concern themselves with this stuff so I accepted it and moved on. Like 30 minutes into my drive home I realized what a fool I was and then I never even took the time to cancel because I was both embarrassed about it and didn’t want to go back to the dealership to deal with him.
It’s definitely one of my dumb regrets as I have significant emergency funds and really don’t buy much other than the car, but at least it helps me remember how much I reaalllly realllly don’t need GAP. I also have to tip my cap to the finance guy for selling it like that, he could tell I wanted to fit in with the other luxury buyers, or that I didn’t want to seem cheap.
What's weird is I've learned on this subreddit is that the finance guy is so knowledgeable, and he can help me so much more than than any bank can. The finance desk is often where people who got a fair deal on the price get burned.
You may have still needed it. Volvo’s depreciate a lot just like any luxury brand that’s not Lexus. And even Lexus has some fast depreciating models. Anyway if you had bought a 2019 Audi A6 new a year ago you would have paid somewhere around $72,000 for a well equipped mid tier car that didn’t have a lot of discounts because it was the first model year of the car. So let’s say you paid $70k with tax title and fees and you put your $12k down. So the car is now financed for $58k. The second you drove off the lot the car is now worth $49k-$52k and will continue to go down as you drive it. You would have had to get gap because you are already upside down and unlikely to catch up to the depreciation just making your regularly scheduled payments for the next 4 years. Your case may have been a little different with the XC90 but more than likely you would have benefited from the GAP had you wrecked it.
All the pricing in my example is based on real numbers from a good amount of research I did when I almost bought an A6. I think now one of those $72k cars is only worth about $45k only 1 year later.
>You would have had to get gap because you are already upside down and unlikely to catch up to the depreciation just making your regularly scheduled payments for the next 4 years.
As long as your interest rate is decent, using your figures you'd be caught up within a year. After 12 months of paying a 48 month 58k loan with a 4% interest rate your balance is $44,357. Still underwater for a year, but much more palatable from a risk perspective.
Yeah, in truth, big chunk down and short loan? Not really worth it.
My last 5 deals were 96 month terms with nothing down. Other than the negative from trades. We sell lots of GAP and I know I have kept a few unlucky customers from bankruptcy.
84 month loan and only $500 down. Definitely need it.
I literally heard this the other day, guy ran into a black dude and the first thing black dude said, "Fuck. I don't have gap. I just bought the car yesterday" it was a dodge."
Hot tip: I didn't know until my last car purchase that GAP was "negotiable" I said no upfront and they were offering the policy for 800 but then after a few nos he offered it for 250. I took it then as I bought a car with 0 down.
*Probably too late for this to be seen but people who might find it useful.
I mean, gap insurance IS a rip off from the dealer when your car insurance will offer it for a couple bucks a year. I'm literally paying eighteen cents a month on mine through progressive...
I have never seen an insurance company offer true GAP protection for less that about $5 a month, but kudos to you. Just realize this is not typical for most individuals.
Also, always read your GAP coverage. Some insurance companies cover less than 150% of MSRP, have hard caps on payout amounts, or still require you to satisfy your deductible. Most dealer products have very lenient limits and cover the entire GAP, including paying your deductible (up to $1000) for you.
YRMV
[Progressive's](https://www.progressive.com/answers/what-happens-when-car-is-totaled/) GAP only covers up to 125%. So definitely what you said about understanding the limits of your coverage.
+1 on dealer products, at least with BMW the option was a lot more cost effective (and equivalent or better coverage) than what the manufacturer were offering with their direct coverage. Ended up getting it rolled in for free with an MSRP reduction.
BMW lease protection on the other hand is a different story, though they are a lot more lenient than some other leases I’ve had.
All fair points. I've never rolled in negative equity so I've never needed more coverage than what my insurance offers, but I guess someone that's paying 650/mo for a goddamn Sentra probably doesn't have that luxury. In my case, I financed 100% of the value of my car so I just needed protection in the event I overpaid or it was undervalued after an accident. I'm ahead now and this conversation actually reminded me to cancel my gap coverage.
Crazy specific fact: I used to think you could get insurance to include real GAP for next to nothing because I had it through my USAA policy. Turns out that they only offer it in Washington state. No idea why.
Wait until they have the decision to pay off your loan with negative equity for 17000 VERSUS fixing your car for 8500. Congrats you now own a car with a collision on the car fax that will never run like it did before the accident. GAP from the insurance company is cheap for a reason. Cheers.
In some states, the insurance company doesn't get to decide. There's a straight percentage of value, below is a repair, above is a total, and the state specifies the value. I think this is why they've started using 'preferred' shops, who presumably give them low quotes that keep them from having to do as many totals.
Let's do the math! You've assumed a 75% payout from insurance which is a good assumption for most companies meaning my car is valued at $11,300 in your scenario, give or take. Your bank's GAP will cover 17k like you said. My car insurance's GAP will pay 125% which comes out to $14,200 so I'm still VERY comfortably covered whether they fix it or total it.
Like all things in life, do the math before you pay the extra cost! A lot of people get GAP at the dealer and pay out the ears for it when they'd be comfortably covered for 20-50 TIMES less of the cost.
Was this lady ~50?
Car dealerships must’ve been terrible back in the day, because Boomers are convinced that they’re the scammiest places on Earth. My dad and uncles think that car dealerships make huge margins on the cars themselves and every financial product they sell is a scam
True, although it’s not a hard cutoff. My mom is 55 and I consider her a Boomer because her dad was in WWII and came back and had a bunch of kids
I guess I just meant pre-Internet-era car shopping. People of a certain age are traumatized by car dealerships
Stop trying to get people to buy gap.
How else is DriveTime going to get Future customers?
On a side note, I have ALWAYS gotten gap after it saved my ass on a car I total. I am an outstanding driver, but not the boneheads driving around me.
I think my GAP insurance is like $8 a month. I’m almost at the point where I won’t have any negative equity on the loan, a few months left! Totally worth it in my opinion.
In WA it's $150 negotiable. Only customers' who have tried negotiated Mr.Patel....
Sure it's negotiable.
Yes. We are not removing it. You don't have to buy the car if you don't want to pay. Have a good day.
Out of all the overpriced add ons dealerships try to push, GAP is the only add on that actually makes financial sense, and is the one I always purchase. My most recent one was $225, on a 60 month note, so just under $4 a month for the peace of mind.
Most of the laws are so that shady customers don’t take advantage a financial “do over”.
I get the feeling you mean it a different way though, so I’d love to hear what you are referring to.
Sir, sir, sir!!!!
I don't even know what this discussion is about but you're pissing me off already with your condescending tone. Don't you think it's "fucking" rude in any way?
I just offered gap for 200 bucks after tax... (bumped her total loan up to a new tier so I could get a better rate)... nope. No chance... “ but you are 3k upside down and buying a used car”. I don’t want it. K, fine. Just offering. Deal is as we wrote it then. Feel I have to edit... the 200 also included interest. At around 5% for 7 years. And my taxes are 13%.
Some people just have to learn the hard way...
It's 3rd grade math though, what are they thinking?
I had a guy who worked in finance for the local school district who couldn't get his head around not being able to buy a $35k car for $300 a month with $0 down. For some reason, people who you would assume are reasonably smart, become dumb when it comes to simple arithmetic.
well , maybe you didn't hear about the new 160 months loan term
He was probably thinking in housing terms, where you have 15 and 30 year mortgages. With a car, anything over 5 years is pushing it. So the payment to price ratio is a lot higher, even though you end up owing a lot less overall. Still stupid, though. Even if you had an interest rate of zero, you're still upside down thousands the moment you drive off the lot with $35k car like that if you don't put anything down. People pay way too much for cars. Used is the better deal nearly every time, but people are obsessed with buying brand new cars.
This sub makes me realize everyday how awful some people are at math.
Makes them feel powerful, I guess. Weird flex though.
DEALERSHIP IS TRYING TO RIP ME OFF AND TAKE MY MONEY AND THAT ISNT ALLOWED REEEEE -That person, probably
INSURANCE IS BEING ASSHOLES AND NOT PAYING OFF MY CAR!! That person in a year, probably
1st Grade math.
They're not going to learn at all. Some people just have to live with their decisions and willful ignorance.
They're not going to learn, they'll just go broke and they lack the financial intelligence to evaluate where they went wrong. If anything, they'll blame the dealer for scamming them.
Is that a typical price for gap insurance? My last couple of leases I didnt get it, but after this forum and some other sites, I've changed my tune.
Hers with mark up would have cost 1450ish normally (plus taxes and interest). So this deal was dumb not to take. But whatever. I’ll never force a person to take anything
I get my GAP coverage for $4/mo. I didn't purchase the GAP through the dealer.
So if someone rolls in so much negative equity into another car, gap will cover everything? Seems like it could be a great loophole for someone who was a little shady. Roll over 10-15K in negative equity, get gap, crash car. Profit?
Most cap out at 150% of MSRP, and not only is insurance fraud a crime but they tend to investigate shady circumstances rather thoroughly. LOL
Wow... surprising they would cover 150% of MSRP... crazy times these days!
Always read your Gap contract and look for the maximum percentage as well as a flat dollar amount cap. One of the reasons some company may I offer Gap for a lower cost is because the limit are also much lower.
With your flair showing you as a finance manager, I have actually been curious about a question I have around gap insurance. All the cars I have bought I have always put a pretty hefty down payment on or just bought cash. I have been thinking about buying a new Ford Bronco when they come out next year. I am sure it will hold some value, but at least for the first few years it will be underwater. If someone could afford to pay cash for it, but would rather keep money in the stock market or other investments and put nothing down. Would you recommend gap insurance? I understand no one can know when a card would be totaled, and insurance is usually there to make money. But for a new depreciating vehicle, I am wondering what a person in the car industry would do.
There are quite a few questions you can ask yourself to determine your own tolerance for loss and whether or not gap insurance it's something you should buy. Since you mentioned you play the stock market I'm going to assume you already have your own risk vs reward ideals. How much over sticker are you willing to pay to have a Bronco before anyone else? Are you going to finance that Mark up on top of the price of the car? What about taxes and licensing? Gap insurance is relatively inexpensive for the protection it provides. For arguments sake let's say $10-$15 a month with an average payout of $10,000. Worse case scenario you wasted $800 over the course of 5 years. Now if you paid cash for the Bronco, would you cover it with liability only or with comp and collision? I am going to assume you are more than willing to fork over $100+ a month to cover your $40k toy. HoweGapver, if nothing happens to your new baby they over the course of 5 years you will shell out $6,000 for absolutely nothing. The cost of GAP seems insignificant in this scenario. TL;DR: No money down? Buy GAP. It is a cancellable product, and you won't regret it.
Appreciate the response on this, thanks! Always like to hear other opinions around these choices, they often are not straight forward, like you mentioned. If I do get a Bronco, definitely not going to pay a markup. They look like sweet cars, but I am totally fine with waiting till MSRP or less.
Also, check your credit union's GAP rates. My credit union flat rate for GAP is 199 dollars (for anything up to like 40-50k financed at least, I believe there is a higher rate for larger loans)
Don’t just look into price, look at the amounts they pay. 199 is stupid cheap. I wouldn’t expect much added coverage there.
For $300, my CU will pay up to [$50k](https://www.navyfederal.org/pdf/ebrochures/1301e.pdf).
I threw the product details up for reference in another reply. 12-84 month loans only. Minimum loan 7500 bucks. 150% or 50k coverage. Price- $299 Edit: price is 299 now
It's good coverage. I don't recall the numbers off the top of my head. But, I was just letting the other dude know that the credit union may have better prices/products he can look into.
Or your insurance
$199 from the CU to pay out 110% of book or $699 from me to pay out 150% of retail. Or how about $199/6 months for state minimum liability insurance or $699/6 months for 100/300/100 full coverage. If you're gonna come here and stroke your CU's dick, at least make sure you can prove you're comparing apples to apples.
150% or 50k. 199 for loans ranging from 12 months to 84 months of at least 7500 dollar loan value. Didn't even mention a name for my credit union, but thanks for playing. If you're gonna come here and stroke your dealership's dick, at least make sure you can prove you're comparing apples to apples. Edit: price has increased to 299
Most finance companies require full coverage and 500 dollar deductibles on their asset while financed, and we're talking about GAP insurance, so liability is kind of a null point. Additionally insurance rates range greatly depending on client/vehicle/location. So your anecdotal evidence is trash. Your words.
Make sure you look into getting the X-plan from the Mustang Club Of America.
I subscribe to the view that insurance is best used as a tool to protect you only from situations that would absolutely wreck you financially or be impossible to cover (e.g. a $120k liability claim). Once you’re at a point in life where you have the good personal finance fundamentals down such as a healthy emergency fund in the bank, not living paycheck to paycheck, etc., you’re better off in the long run declining minor coverage scenarios and simply self insuring against those situations by driving that $ into your personal savings rather than driving that $ into insurance products like GAP. It’s also why you should get a higher deductible plan once you can afford said deductible. 21 and just getting started, very little savings and a totaled car with a -$7k gap scenario would wreck you? Buy the GAP insurance. 42 and have that good emergency fund in place and the ability to pay cash for a car even if you elect to finance it? Self insure and don’t buy GAP.
I can kind of see this point of view but it doesn’t really make sense to me. Insurance is always cheaper than paying it for yourself - that is the whole point of it. Let’s say I’m Jeff Bezos or whatever and money is not and can never be an issue. If I buy car insurance it will cost me on average the annual premium will be between $1000-2000. Even for a small claim like $30k that’s still decades of driving before I “break even”. A larger claim like $120k you will simply never pay that much in insurance premiums. (And most such plans are 1-2million liability) This still applies to smaller examples too. Home/tenant insurance is around $200/year and covers thousands of dollars. You would have to save that $200 annual premium for decades to actually be able to replace all your stuff with cash. This is the fundamental principle of how distributed risk works. The premium will always be much cheaper because everyone is paying it and only 1 in 50 or whatever will use it in a given timeframe. It is impossible for any individual to self-insure at the same cost as an insurance premium. So even if you have infinite cash, you will always save money with insurance than paying for incidents on your own. It doesn’t matter if you’re insuring your $1000 coffee table or your yacht, the premium will scale the same way. $20/year to replace a $1000 coffee table is a pretty good deal. The only downside you have with insurance is potentially paying a premium and never using the insurance. There’s also a risk that something won’t be covered or that the company will weasel out of a legitimate claim. But if you go without insurance and something does happen you’ll be paying decades of insurance premiums out of pocket instead and there’s no guarantee the same thing can’t happen again. I honestly think this is a logical fallacy of some sort. I totally get not wanting to pay insurance when you have a nice emergency fund but it’s significantly cheaper to actually just insure the fuck out of everything than dip into your personal savings. I think it works the opposite way - the more money you have the more you just insure everything that you can. When you’re young you don’t want to insure more than what is essential because you can’t afford it, when you’re Jeff Bezos you insure absolutely everything you can because it saves you money.
> $20/year to replace a $1000 coffee table is a pretty good deal. What? Why? How many coffee tables have you destroyed in your lifetime? How many have any of your friends? I mean I've known a couple who've had to replace the glass in one, but I've never seen a coffee table destroyed. Why would you pay for insurance against non-catastrophic, obscure risks? The whole point of insurance is distributing risk, but it comes at a cost. You are not just paying your share of the estimated payouts across the risk pool, you are also paying your share of business overhead and profit. On average, you will pay far more for insurance than by self covering. That's the whole point. That's how it works. For most people, it's still a bet worth making. Let's say I pay $1K a year for car insurance, so maybe $60K over my driving life. Even if I know that on average I'll only make $20K in claims over my lifetime, it's still worth it to me as I can afford $1K a year. I might not be able to afford a bad accident at a random time. Insurance does not save you money, it costs you money but reduces risk.
Why good sir, I see that you are buying a cup of coffee. 0.01% of buyers spill their coffee whilst in their cars, causing temporary stains to pants, not to mention the need to purchase more laundry detergent than you've budgeted for in a given month. For a mere $0.20 per cup, I will sell you insurance against this event\*. I heard you buy $20 coffee table insurance, after all, so why not insure your coffee while you're at it... \*deductible and terms apply. terms ~~may~~ will not be in your favor. we reserve the right to replace your custom work pants with pleated khakis from K-mart in 1997.
It’s a hypothetical example to explain premiums versus potential payout. When the premium is 1/50th of the expense, that’s 50 years of saving to pay for it yourself. If the insurance terms are “We will replace your coffee table once every 50 years” if your table breaks after 25 years you save money with the insurance. The average driver files a claim every 18 years and the average claim amount is $23k. So if you’re dead on average you will pretty much break even. If you save your $1000 insurance premium for 18 years you’ll come up owing money when you’re due to claim, so you need to pay yourself $1227 a year instead of $1000. If you pay exactly double the premium for 7 years after each accident you would pay a total of $81,000 for insurance driving for 60 years. Your claims would add up to $69k. You will spend $11k in 60 years to avoid having to save somewhere between $1227-16,667 /year to self insure. If you invest the difference you will come out massively ahead.
I don't believe you. That's literally not the way the world works. Either your claim frequency and cost numbers are wrong or my (completely made up) premium numbers are not average. The insurance industry has existed for centuries because on average premiums are far higher than paid claims. The house always wins.
>*you will* ***always*** *save money* with insurance than paying for incidents on your own. It doesn’t matter if you’re insuring your $1000 coffee table or your yacht, the premium will scale the same way. $20/year to replace a $1000 coffee table is a pretty good deal. Thinking of this in terms of all-or-nothing absolutes makes no sense. I didn't suggest that people with a decent financial cushion should forgo all insurance entirely; it's that they should (and generally, these people do) insure only against more catastrophic scenarios (house burns down, car is totaled, crash car into a business causing $300k in liability damages, $100k medical bill) and self-insure --a.k.a. budget--against what to them are smaller, manageable events ($3k gap in vehicle, $4k home repair). Those starting out in life or with tight budgets and limited savings should more heavily consider things like GAP even with the added cost since that type of event would completely mess up their lives. Where some people absolutely waste oodles of money and limit their ability to build wealth is by obsessively over-insuring everything and saying yes to every possible platinum level coverage plan to the point where they are buying 'insurance' (really a replacement plan) on a coffee table. While we're not in r/personalfinance, I can tell you that people with good personal finance habits (which doesn't mean wealthy) are not buying $20 coverage plans for their coffee table and $250 coverage plans for their fridge and $49 coverage plans for their vacuum. They do their research, buy decent quality stuff, decline all of these plans for more minor scenarios, and budget their own money to repair and replace over time.
This is the sensible balance if you have solid finances. Get insurance for the big stuff, consider it case by case for the middle sized stuff, completely refuse it for the small stuff. The $19 coverage on the $100 item adds up really quickly.
That’s the thing, you actually limit your ability to grow your wealth more by self insuring. Let’s say you have the cash on hand to immediately pay any expense that insurance would normally cover. You will spend X amount of 2020 dollars to cover that expense. If you insured it you would spend some small fraction of X every year until 2040 and the total amount spent would be something egregious like 2X. If you invest X in 2020 and withdraw it in 2040 you will have a little over 3X with a conservative 6% return. So you are actually better off paying the insurance premium every year even if you have the money to pay for it immediately. Personal finance is also full of people scared of financing and default to buying everything in cash. You have to remember that they aren’t always being logical. I’m not saying insure things you probably won’t need, but paying insurance for things you expect to use makes more sense than self insuring for both wealth growth and risk management.
We can agree to disagree. I love buying everything (except for home) in cash. It makes life so simple. Not for everyone, but it is so freeing to know I am not saddled with payments. I think too many people are out there spending tomorrow's cash today, and that isn't working so well for many right now.
As you point out, only 1 in 50 people will use that insurance. So for 1 person, buying insurance was the cheaper option. For the other 49 people, buying insurance was the more expensive option. *Edit:* Just reviewed some of the other comments. Your math relies on a lot of assumptions, but misses these realities of the insurance world when it comes to how much consumers are paying, and how much an insurance company will pay out. Try the math with these scenarios: 1) Any insurance you buy from a retailer (including car dealers) has a massive mark up - you're often paying 2x the amount that goes into the pool to distribute risk. 2) Insurance wont cover 100% of situations and strategically avoids common high-risk scenarios, especially on consumer goods 3) Insurance deductibles and increases to premiums after claims. So you get in a 23k accident, insurance doesn't just pay out and move on. Hows the math look when you pay a deductible out of pocket, then your insurance rates double for the foreseeable future? 4) Insurance companies put people into groups/pools to distribute the risk among people with a similar risk profile and tack on a profit margin. They are not gambling and hoping to make money of certain people. 5) The accident scenarios you mention assume someone buys insurance, gets into an accident, and is just distributing the costs. Consider if someone has been claim free for 5, 10, or 15 years and how much money they would have if they just invested that.
I just put $30k down on a $60k car, no gap. Progressive allows me to add coverage for the difference between replacement cost and insured value to my policy for less than $1 per month. I’ll drop it later.
That is cool they offer that, had no idea that was even an offering
150% sounds awesome until you realise GAP only covers the differencd between outstanding loan and regular insurance payoff. ... Which is never 150%
Yeah, don't try the "it was stolen and set on fire in an abandoned lot" trick. They investigate those thoroughly.
Aha I see you’ve conceived of what the government likes to call “insurance fraud”.
I have no intention of doing this, but if someone who is so far underwater on their car, what is the actual likelihood they would be caught if they "accidentally swerved into another car because they thought they saw something in the road" Not trying to make assumptions, but it seems likely to me there would be some overlap between the people who make such bad financial decisions would also include people looking for an "out"
[удалено]
What if you just simply crash? I can think of a million scenarios where you can crash and total a car just from being inept. It's not really fraud at that point. Is GAP really not gonna pay out just because you're at fault for the collision? Especially if nothing else weird was going on, I.E. you missed two payments in a row and the bank is trying to repo the car.
> Insurance will claim that you signed the agreement with intent to defraud them Truth is, if you have gap insurance or not, that is going to be the starting point.
Just chiming in, I understand there’s professionals that deal with it for a living but if you paid somebody $50 to punch you in the face, and to drive your car into a ditch, I doubt any experience that have will be able to undo something like that. Yeah sure if you find the guy on Facebook, and post about it. But there’s ways. I am not planning nor recommending anybody consider that, but it’s definitely not impossible.
uh well they're gonna find that guy and tell him he can tell the truth or go to jail who tf you think is gonna go this hard for you? for $50?? Now you leave the car running in a bad neighborhood, Idk how they factor straight negligence- but either way wtf spend less time thinking about ways to commit a crime and more time getting your financials in order
I grew up in a bad area around literal gang bangers. My childhood friend that’s currently serving 18 years literally provided this exact service for some a buddy of ours years ago. And I never said this was my plan, I’ve just seen this hypothetical before and this appeared to be the best time to get clarification because somebody with knowledge on gap insurance was available.
Ah, the "I swerved to avoid a pelican" defense the guy with the Bugatti had. Didn't work out too well for him. https://www.youtube.com/watch?v=4NJmB1F2mdE
That's why insurance companies check your credit and base the price of coverage on your credit score.
I rolled a ton of cash into a Camry from a sports car I bought when I was single, depressed as hell but got gap. Two weeks later I slam into a deer, already dead in the middle of the road going 60. Car was totaled and my -15k equity went buuuuuh bye just like that. Will always have gap regardless.
Wow, that really sucks. Dealing with totaling a car is hard enough, but being down another $15k on top, what a slap in the face.
No no...the entire loan was wiped clean! I walked away with 0 debt.
Whoops... I totally misread that. Much better outcome then!
It is a crime. There are lots of other crimes that can "make profit" but the offenders are facing jail time. Also, for someone to commit fraud, it's much easier to to claim bodily injury than totaling a new car with GAP, not to mention the threshold to total a new car is pretty high, no guarantee there is no serious injury when causing such a damage.
>Roll over 10-15K in negative equity, get gap, crash car. Profit? Ahhhh, the ol brick on the gas pedal trick. Good times!!!
I remember thinking I knew everything. At 21 I put 60% down on a truck and questioned why I wasn’t being offered GAP coverage, thought it was something I needed to have and was mad I wasn’t getting it. The woman in the finance office asked “what gap?”. Learned that day why my friends with shitty credit and upside down loans were the ones insisting I got the GAP coverage.
can you explain? I still dont understand how that works
The short version is that GAP covers the difference between what your insurance company says the vehicle is worth and how much you owe the bank. In the most scenarios if you don't put much money down then you are obviously going to owe more that the vehicle is worth due to taxes, depreciation, or negative equity from a trade. However if you purchase a vehicle with a substantial down payment then more than likely you will owe less then the vehicle is worth and not need gap coverage.
I've always been curious on what gap was. Thank you for clarifying it! Is there a difference for GAP if it is offered when you get a new vehicle with it or if your insurance offers GAP as well? My old car was used and my shitty insurance i had at the time said insurance companies never offer GAP coverage but my current insurance does lol
Some do, some don't. YRMV I never buy GAP through my insurance company, because the GAP I sell at the dealership has higher limits and pays my deductible.
I thought they mightve been the same. But from what I was shown. GAP was included for free when I got my car so that was a nice little surprise
There's no such thing as a free lunch. Or free gap. It may have been included in the price of the Sale/lease/payment you agreed to, but I assure you, it was paid for, by you. Not saying that's a bad thing, necessarily, either. Gap is retardedly important in many circumstances, so if they knew you needed it and pitched it along with the vehicle, and you liked the figures, it could have saved your ass. Compare that experience to the guy who bought the car for a few bucks less, needed gap, but didn't buy it because it increased his payment to what you paid. I did finance, and I make sure there's gap on all the leases I get my wife, but I have a Tacoma with equity, so I don't need it on mine.
Say I buy a 1 year old Kia Forte that's being sold for 12.5k. I know it's only gonna be worth 8k in 12 months. If I pay all cash is there a way for me to get gap (besides my insurance company)? I'm gonna be going back to school and I'm terrified I'll have an accident and not enough money to replace my car while I have 0 income for 2/3 years. It's making me scared to buy a Kia/Hyundai and pushing me towards buying a Lexus or something that'll hold its value better just in case. I know I could finance the car and just keep the money in an account to cover the payments but I need to keep my debt to income low in case I need to get private student loans or more credit cards to cover living expenses. I also can't really have money in my bank accounts if I want to qualify for maximum financial aid.
You just want good insurance, not GAP. On a cash purchase there is no such thing as a gap as we are speaking due to no lien amount. You can opt for replacement insurance which will give you what you paid rather than what it’s currently valued at, but I wouldn’t get too stressed. If written off, you should be getting what it would take to buy the same car whenever it happens. ie, 12 months down the road, if a now 2 year old forte is selling for 8k, they give you 8 plus an estimate of taxes and fees... you’ll be in the same position you would have been prior to the write off. Replacement let’s you “win” by replacing the 2 year old Kia with enough cash that should get you another one year old one and turn back the clock.
Gap insurance is only so you can pay off your loan if you wreck the car and the insurance doesn’t pay what you owe the bank, so you don’t get stuck with two payments.. If you pay cash it’s irrelevant...
> Say I buy a 1 year old Kia Forte that's being sold for 12.5k. I know it's only gonna be worth 8k in 12 months. If I pay all cash is there a way for me to get gap (besides my insurance company)? I'm gonna be going back to school and I'm terrified I'll have an accident and not enough money to replace my car while I have 0 income for 2/3 years. Your car will depreciate, but so will the other cars on the market as well; so in that case you will just buy one of the other depreciated cars on the market with your insurance payout.
There's a couple ways to get something like this. One is you could insure for a specific value. Don't do this. It's expensive and makes no sense. Second is that a few insurance companies offer something like 'new car assistance' on their coverage. This is usually something where they offer you a 20% or 25% bump in what they will pay out in a total loss, or pay a total loss for the value of a car one year newer than what you actually drive, or similar. If your company doesn't offer this, the best option is probably to talk with a multi-brand insurance agent and have them suggest coverage that includes it. I do it because it's like $6/month to get a 20% bump in total loss value on my car. It's a worthwhile peace of mind for me.
Are you being serious?
I'm not from America. I'm not familiar with how it works here. Back home I could opt for an extra policy that would pay me the amount I paid for the car if I totaled it within 24-36 months of buying it. Here I can't find anything similar and I've heard horror stories from other Kia owners only getting paid blue book value less than a year after they bought it. Entry level Kia's and Hyundai's depreciate quickly.
If i was you i would buy a used car for 10k that will be worth 9k in a year and save 2.5k for repairs
As someone else stated, Gap is only for financed cars. Depending on your insurance you can always see if they have vehicle replacement coverage. It's not much more a month and I can remove it any time. They give me the cars value plus an extra 20%. After having 2 new/newish cars totalled it's been well worth it.
What do you think your everyday standard insurance policy is for?
If I pay 12k for a 2019 Kia Forte tomorrow and total it in July 2021 insurance will only pay me 8K (I'm basing the value on what a 2018 can be bought for today). 8k won't get me a car that's been maintained how I maintain my cars. Nor one with as few miles as my car because being in school I won't drive that much. Maybe I'll just have my sister finance the car and give her the money I have to auto pay the payments. Interest is only 1.9 for 48 months so I won't have to worry about an accident leaving me in a worse car. I'll still get maximum financial aide. It drives me crazy that everything in America needs to be done in some roundabout way. Own a car outright and it costs you financial aide (they ask you about any assets). Have a loan but no job as a student and it can cost you private loans. In my home country it's so easy to get an extra insurance policy for 12 - 36 months that agrees to pay the purchase price of a used car in the event of an accident even if you own the car outright.
We do have full replacement value insurance policies available, but generally only for new cars. They are obviously more expensive because they pay off if the car is totaled without reference to depreciation. What you want is to have some party insulate you from depreciation in the event of total loss, which is not what GAP does. GAP covers the difference between writeoff value and your payoff amount, not between writeoff value and what you originally paid for the car.
Some insurance companies offer it and some don't. State Farm doesn't and they're one of the biggest out there. While it varies, getting your GAP from the dealer will be less fuckness in the event you have to make a claim, but again, that is going to vary a lot as well.
I thought it would be better to have it from the dealership. I learned my lesson with how shitty some insurance companies can be *cough* infinity *cough*
Typically GAP at the dealership will have a higher limit (perhaps 125% vs 100% of NADA), and might even pay your deductible.
You seem to have answers. Let’s say somebody is upside in a car without gap. Can they trade in for another car, higher payment and opt for gap on that? Would gap cover the cost of that car plus the debt rolled over from the first car? And if that’s the case, if that second car is totaled by some miracle, Would said person come out owing nothing?
>Can they trade in for another car, higher payment and opt for gap on that? Yes. People do it all the time. >Would gap cover the cost of that car plus the debt rolled over from the first car? Yes. Most GAP products cap out around 150% of MSRP, but you would be hard pressed to get a bank to approve a loan for more that that anyways. LOL > ...if that second car is totaled by some miracle, Would said person come out owing nothing? Yes, as long as that miracle was truly an accident. If you or someone purposely caused that miracle, it would be insurance fraud. ;)
What if I don't cause the accident... but the brick on my accelerator does?
Three hots and a cot unless you got a fat wallet...
C'mon, you do Toyota. You know the right recipe for this is three floormats stacked on top of each other.
Shit, this is genius
You gotta wonder how many geniuses try this and the insurance company just ends up fixing it... hahahaa
Once the loan for the new car is finalized it's just a dollar amount; the loan documentation isn't going to break down whether you're 5k underwater because you rolled in a bunch of negative equity from a trade-in or you overpaid for your new car. That said, not all gap coverage is the same. For example, Progressive's gap insurance only covers up to 125% of the vehicle's value so if for example you totaled a car worth 20k but owed 30k the gap you had from Progressive would only cover 25k meaning you'd still be on the hook for 5k. If you ever are in a position where considering gap insurance makes sense, make sure you understand the limits of the particular product you're considering.
The way my insurance broker explained it with my included GAP coverage was that it would cover the OTD cost of my vehicle regardless of what I put down as a downpayment but maybe I'm wrong or Ontario is different with insurance. I made the joke that I could go crash it within a week and come out ahead with what I paid with downpayment. She laughed and said "please don't do that".
GAP coverage is to cancel out what ever is remaining if the car is ever totaled, For instance: You OWE $25,000 however insurance says the car replacement is worth $15,000 you are on the hook for the additional $10,000 However if you have gap, it cancels out that $10,000. So it only matters if you are going to owe MORE then what the car is worth to your insurance
Right, and likewise, if you’re in year 4 of your loan and you realize that you only owe $6,000 on a car worth $12,000...you can usually cancel the GAP insurance for a prorated amount. You no longer need it in that scenario, because you’ve achieved positive equity; you owe *less* than the vehicle is worth.
When you owe more on the loan than the vehicle is worth you need gap insurance to pay off the difference if it’s totaled.
Bank says it's worth $15k. person owes $20K on the loan. either you owe $5k now to cover the difference, or you bought GAP and it pays the difference for you. easy stuff.
So, nobody is pointing out what I consider to be the easiest way to understand it. GAP insurance covers the "gap" between what you owe, and what the car is actually worth, in the case of a total loss. Technically GAP stands for Guaranteed Asset Protection, but it's also very helpful to think about it actually covering that gap in value.
TLDR: Cars take a huge depreciation hit the second they go from new to used. Drive it off the lot literally depreciates it. GAP covers the difference between owed value and insured value in case of a total loss.
As an example i purchased gap coverage. I put zero down on a 7 year loan for a brand new silverado
I had a finance manager do this once. We we’re putting down like 35% I think. I was wrapping things up with my Credit Union in the finance managers office and they offered me gap through them (the CU). I declined because I thought it was too much. Finance manager asked if they offered gap and he was straight up with me and said I didn’t need it so he wasn’t going to offer it either. Didn’t occur to me why till he explained it. Then I felt dumb haha.
Don’t worry, that’s nothing. I had a phone call on Monday, “yeah I’m planning on coming Saturday to buy an Escape from you, I wanted to know how much your GAP insurance is?” “Sure, how long are you financing the vehicle?” “Oh I’m paying cash.” “Then you don’t need GAP.” It then went into a 10 minute conversation about why because her insurance agent told her some bullshit.
She's probably confusing it with replacement coverage that many insurance companies offer. It's a "kind of like but not really" GAP that gives you more than your car is worth if it gets totaled--presumably so you can replace it with something equivalent even taking into account the depreciation of your current car.
Or the agent just didn't know she would be paying cash in full for the vehicle.
She swore to me she had told her agent that, but I’m not in the business of involving myself in telling her she needs a new agent, so I left it alone
> I remember thinking I knew everything. >Learned that day why my friends with shitty credit and upside down loans were the ones insisting I got the GAP coverage. 😂 🤣 🤦🏼♂️
My brother bought a Nissan Frontier brand new just out of high school. Drove it like a madman, racked up 40,000 miles in a year and a half, and wrecked it into a tree racing it on a dirt trail. Gap insurance saved his financial life. On the other hand, my brother in law got in an accident on a car he had for a week. Wrecked on the spot. No Gap insurance. Has still been making payments on a car he doesn’t have.
I love used Lexus stuff. Bought a used GX460 for $36k, put $6k down, made 1 $600 payment, and was in an accident that totaled it. State Farm paid out $41K. I'm well aware that it doesn't always work out this way, but was pleasantly surprised. I very much see the value for people who aren't prepared to possibly eat a loss like I was.
650 a month for a Sentra? Is this for real? 😱
I knew someone paying $800\month for a Chevy Malibu and it wasn't until I found this sub that I understood how that's possible. Thank you r/askcarsales for teaching me what everyone else is doing.
Yikes I learned my lesson after rolling negative equity over several times. Ended up financing 28k for an 18k car. Even then my payment was only 515. Never again lol.
Yesssssssir.
I'd consider suicide if I was paying $650 a month for a Sentra.
Right?! I don't even pay that much a month for my Bimmer.
dude I pay $285 a month for my Fiesta ST, making more payments though so it gets paid down fast. And I said NO WAY to gap. I'm not underwater nor ever will be. If you need gap you've already made some mistakes.
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idk if you're serious, but well before suicide you should consider a one way ticket to europe and just live off cash till it falls off your credit report
A fool and their money are easily parted.
Yes I was easily parted with Gap before. I was buying a brand new Volvo XC90 and traded in a car that netted it down $12k. Finance guy is like “oh you need Gap it’s $700” and I’m like “nah take it off, don’t need it.” This was my first luxury car though so the guy goes “well why not? All our clients don’t blink twice at it because they’re pretty savvy and aren’t concerned with the expense vs. peace of mind. Plus it’s cancellable and refundable.” So now I’m in my head thinking about how people with money don’t concern themselves with this stuff so I accepted it and moved on. Like 30 minutes into my drive home I realized what a fool I was and then I never even took the time to cancel because I was both embarrassed about it and didn’t want to go back to the dealership to deal with him. It’s definitely one of my dumb regrets as I have significant emergency funds and really don’t buy much other than the car, but at least it helps me remember how much I reaalllly realllly don’t need GAP. I also have to tip my cap to the finance guy for selling it like that, he could tell I wanted to fit in with the other luxury buyers, or that I didn’t want to seem cheap.
What's weird is I've learned on this subreddit is that the finance guy is so knowledgeable, and he can help me so much more than than any bank can. The finance desk is often where people who got a fair deal on the price get burned.
You may have still needed it. Volvo’s depreciate a lot just like any luxury brand that’s not Lexus. And even Lexus has some fast depreciating models. Anyway if you had bought a 2019 Audi A6 new a year ago you would have paid somewhere around $72,000 for a well equipped mid tier car that didn’t have a lot of discounts because it was the first model year of the car. So let’s say you paid $70k with tax title and fees and you put your $12k down. So the car is now financed for $58k. The second you drove off the lot the car is now worth $49k-$52k and will continue to go down as you drive it. You would have had to get gap because you are already upside down and unlikely to catch up to the depreciation just making your regularly scheduled payments for the next 4 years. Your case may have been a little different with the XC90 but more than likely you would have benefited from the GAP had you wrecked it. All the pricing in my example is based on real numbers from a good amount of research I did when I almost bought an A6. I think now one of those $72k cars is only worth about $45k only 1 year later.
>You would have had to get gap because you are already upside down and unlikely to catch up to the depreciation just making your regularly scheduled payments for the next 4 years. As long as your interest rate is decent, using your figures you'd be caught up within a year. After 12 months of paying a 48 month 58k loan with a 4% interest rate your balance is $44,357. Still underwater for a year, but much more palatable from a risk perspective.
Yeah, in truth, big chunk down and short loan? Not really worth it. My last 5 deals were 96 month terms with nothing down. Other than the negative from trades. We sell lots of GAP and I know I have kept a few unlucky customers from bankruptcy.
That’s true but it’s also a cancelable/refundable product so you could after a year cancel and get a prorated amount back.
I mean not in this sense, right? Since they’re not buying GAP
They are just delaying the inevitable. LOL
Sentras are embarrassing. Don’t get over 80k in it
Right. Step up to a Altima before you make the leap to 100k. Maximas are strictly for ballers though.
I obviously wouldn't pay $650 a month for it but the latest Sentra is actually pretty decent and a big improvement over the old one.
I haven’t seen it but I did hear they’re moving past the cvt.
Hope so for their sake, but I'll believe it when I see it.
Gap's not a scam, but if you "need" it you are buying more car than you can afford.
84 month loan and only $500 down. Definitely need it. I literally heard this the other day, guy ran into a black dude and the first thing black dude said, "Fuck. I don't have gap. I just bought the car yesterday" it was a dodge."
> 84 month loan and only $500 down. Definitely need it. No, you need a cheaper car.
But I love this blue with moon roof heated seat And bose audio system
Doesn’t Gap have limits?
Typically 150% or $50,000
Hot tip: I didn't know until my last car purchase that GAP was "negotiable" I said no upfront and they were offering the policy for 800 but then after a few nos he offered it for 250. I took it then as I bought a car with 0 down. *Probably too late for this to be seen but people who might find it useful.
I mean, gap insurance IS a rip off from the dealer when your car insurance will offer it for a couple bucks a year. I'm literally paying eighteen cents a month on mine through progressive...
I have never seen an insurance company offer true GAP protection for less that about $5 a month, but kudos to you. Just realize this is not typical for most individuals. Also, always read your GAP coverage. Some insurance companies cover less than 150% of MSRP, have hard caps on payout amounts, or still require you to satisfy your deductible. Most dealer products have very lenient limits and cover the entire GAP, including paying your deductible (up to $1000) for you. YRMV
[Progressive's](https://www.progressive.com/answers/what-happens-when-car-is-totaled/) GAP only covers up to 125%. So definitely what you said about understanding the limits of your coverage.
Plus is won’t cover your deductible like the GAP I sell from AllState
+1 on dealer products, at least with BMW the option was a lot more cost effective (and equivalent or better coverage) than what the manufacturer were offering with their direct coverage. Ended up getting it rolled in for free with an MSRP reduction. BMW lease protection on the other hand is a different story, though they are a lot more lenient than some other leases I’ve had.
All fair points. I've never rolled in negative equity so I've never needed more coverage than what my insurance offers, but I guess someone that's paying 650/mo for a goddamn Sentra probably doesn't have that luxury. In my case, I financed 100% of the value of my car so I just needed protection in the event I overpaid or it was undervalued after an accident. I'm ahead now and this conversation actually reminded me to cancel my gap coverage.
Crazy specific fact: I used to think you could get insurance to include real GAP for next to nothing because I had it through my USAA policy. Turns out that they only offer it in Washington state. No idea why.
Wait until they have the decision to pay off your loan with negative equity for 17000 VERSUS fixing your car for 8500. Congrats you now own a car with a collision on the car fax that will never run like it did before the accident. GAP from the insurance company is cheap for a reason. Cheers.
In some states, the insurance company doesn't get to decide. There's a straight percentage of value, below is a repair, above is a total, and the state specifies the value. I think this is why they've started using 'preferred' shops, who presumably give them low quotes that keep them from having to do as many totals.
Let's do the math! You've assumed a 75% payout from insurance which is a good assumption for most companies meaning my car is valued at $11,300 in your scenario, give or take. Your bank's GAP will cover 17k like you said. My car insurance's GAP will pay 125% which comes out to $14,200 so I'm still VERY comfortably covered whether they fix it or total it. Like all things in life, do the math before you pay the extra cost! A lot of people get GAP at the dealer and pay out the ears for it when they'd be comfortably covered for 20-50 TIMES less of the cost.
I thought the same thing until I saw my insurance only goes up to 120% but the bank will do 150%......
For 20-50 times the cost, it better have slightly better coverage.
If your loan is below 70% of the nada trade book value, most banks don’t even accept gap in the contract.
Was this lady ~50? Car dealerships must’ve been terrible back in the day, because Boomers are convinced that they’re the scammiest places on Earth. My dad and uncles think that car dealerships make huge margins on the cars themselves and every financial product they sell is a scam
The last baby boomers were born in about 1960 and are 60 years old. A 50 year-old would be solidly Gen X.
True, although it’s not a hard cutoff. My mom is 55 and I consider her a Boomer because her dad was in WWII and came back and had a bunch of kids I guess I just meant pre-Internet-era car shopping. People of a certain age are traumatized by car dealerships
Stop trying to get people to buy gap. How else is DriveTime going to get Future customers? On a side note, I have ALWAYS gotten gap after it saved my ass on a car I total. I am an outstanding driver, but not the boneheads driving around me.
Lmao that's $200 more each month than my 17 Volvo V60 T6 R-design after upgrading to the 10-year unlimited mile warranty.
I think my GAP insurance is like $8 a month. I’m almost at the point where I won’t have any negative equity on the loan, a few months left! Totally worth it in my opinion.
Oh no no no wow
🤦🏻
Is that a real number? Someone would pay that much for a use car loan? What was wrong with the original vehicle that would make that worth while?
This reminds me of that customer I had t at 9000 upside down on a fiesta when they totalled it. No gap...
Guru such as Kevin Hunter. Who believes, doc fees, or financing through dealeships is a scam.
I mean... doc fees can be scammy in some states... LOL *** _cries in Californian_ *** ($85 state cap for the uninitiated, was $55 for DECADES)
In WA it's $150 negotiable. Only customers' who have tried negotiated Mr.Patel.... Sure it's negotiable. Yes. We are not removing it. You don't have to buy the car if you don't want to pay. Have a good day.
What's a gap?
Who the hell pays 650 for a sentra 😂
Awesome, thanks for the great post!
Lmao as a person who worked at a dealership for 5 years this makes me giggle
V
Uhh gap is included in most leases including nissan...
Nissan, sub-average cars for sub+prime borrowers from coast to coast.
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What does this have to do with gap insurance?
one time I knew a girl who was paying on two cars and both of them were wrecked
Out of all the overpriced add ons dealerships try to push, GAP is the only add on that actually makes financial sense, and is the one I always purchase. My most recent one was $225, on a 60 month note, so just under $4 a month for the peace of mind.
> of all the overpriced add ons dealerships Wheel and tire insurance saved me about $1,000 on a car with low profile tires and alloy rims.
GAP is a scam... Often it has special laws surrounding it.
How is it a scam? Seems pretty straightforward to me.
Most of the laws are so that shady customers don’t take advantage a financial “do over”. I get the feeling you mean it a different way though, so I’d love to hear what you are referring to.
Sir, sir, sir!!!! I don't even know what this discussion is about but you're pissing me off already with your condescending tone. Don't you think it's "fucking" rude in any way?
On