|MIND THE GAP|
|Posted on: Sep. 19, 2017 in Car Loans, Auto Insurance|
Being upside down on an auto loan – that is, owing more than the car is worth – can happen to anyone. Brand new cars, for example, lose value quickly once they’re driven off the lot and, as a result, the outstanding balance on the loan can exceed the value until the principal is paid down. Owners of used cars may find themselves in a similar predicament, especially early on.
For those with bad credit who borrow money at a higher interest rate, it may take even more time pay off enough of the loan to avoid being upside down. While this may not pose much of a problem under normal circumstances, if the car is totaled or stolen, the owner won’t have enough insurance to cover the full amount of the loan.
Let’s look at it another way: Let’s say you own a car that is worth $5,000, but you still owe $6,000. If the car is damaged beyond repair, insurance may only pay the $5,000 that the car is worth. However, this does not erase the fact that you still owe $6,000, and you’ll have to come up with the other $1,000 out of your own pocket. You’ll also likely need to put money down on a new car. For some, the difference between the value of the car and the amount owed on the loan can be much higher. This situation can become particularly stressful very quickly.
There is something you can do to avoid this situation. When purchasing a car, consider also purchasing guaranteed auto protection insurance, also known as GAP insurance. You can usually buy this type of coverage through your insurance agency, the car dealership, or other companies that specialize in this insurance. If you can no longer drive the car or it’s stolen, your regular auto insurance should cover up to the value of the car and your GAP insurance will help cover the difference. While you’ll still be left without a vehicle and the need to purchase another, you won’t have the burden of making payments on a car you no longer own.
If you’re not sure whether or not you need this coverage, consult an insurance advisor to help you.
If you’re ready for a new car but your credit is keeping you from getting approved, CreditYes can help with our bad credit auto loan program! We can match you with a dealership in your area that will be with you every step of the way. Our service is fast and free. Fill out our secure online application and get behind the wheel of your next car today!