If you're in a position to pay cash for a brand-new car, you won't have to worry about the value dropping quickly. But if you've financed your new car with a loan and haven't put down at least 30%, you should think about taking extra precautions to safeguard your investment. If you're concerned about going into negative equity on your new car loan, you need to move quickly. The solution lies in gap insurance or other loan/lease payback coverage. If you had to choose one, however, which would it be? The time limit in which you may make the purchase, the amount of coverage required, the cost, and indeed the availability of something like the coverage are all factors to consider.

Time Limit For Purchasing Insurance

To be effective, gap insurance must be obtained quickly, often within 30 days following a major purchase. Only a car that has never had a title before is eligible for this option. Some potential purchasers may find the rules to be too restrictive. Decisions need to be taken quickly, so you don't risk exceeding the allotted time. You may get loan/lease payoff insurance whenever you want. Even if you don't know about loan/lease payment until a friend tells you about it months after your original purchase, you may add it to your policy. As with any financial product, insurance benefits from adaptability. Gap insurance pays for anything between your loan amount and your car's actual cash value (ACV) in case of a total loss.

The Typical Loan/Lease Payback Is Just 25% Of The Vehicle's Acv

3 The loan/lease payback coverage will only pay up to the ACV of the car, so if the ACV is $20,000, the most you would get is $5,000. There is often a deductible associated with loan/lease coverage as well. You may be responsible for paying both of these deductibles if there is a complete loss. Find out how much money would be left over if you were to file a complete loss claim right now. Check your loan balance against the Kelly Blue Book value. There is usually no need for more than the standard 25% coverage that comes with a loan or lease payback.

Availability

Loan/lease payback coverage is less prevalent than gap insurance. Most car loan companies offer Gap insurance and are often included in lease agreements. When comparing gap insurance to loan/lease payback, gap insurance is more common. Since gap insurance is often not available for used automobiles, loan/lease payback is useful. Loan/lease payback may also relate to genuine gap insurance. Therefore be wary of such terms. Find out what your specific plan covers by contacting your insurance company. Progressive provides loan/lease payback coverage but not gap coverage, so keep that in mind if you're weighing your options. 3 You could also contact your financial institution to inquire about loan/lease payoff options.

If you discover that you have been upside down late in your loan, you should investigate your possibilities for a loan or lease payback coverage. True gap insurance is ideal if you want the whole balance of your car paid off without having to pay a deductible or any other out-of-pocket costs. Insuring yourself with both is smart since it may safeguard your future finances. No one plans on being "underwater" on their auto loan. To reduce or eliminate your need for gap insurance, you should do everything you can to plan for the automobile purchase. Sometimes, such as when signing a car lease or when a person's financial woes coincide with mechanical difficulties with their vehicle, this is inevitable. Most Americans couldn't get by without some transportation. Get yourself covered with gap insurance if you ever find yourself in the unfortunate position of being unable to make the monthly loan payments because the value of your automobile has dropped.

Conclusion

Gap insurance policies are often required to be obtained during the first 30 days of vehicle ownership. Some insurance companies may provide gap coverage if you are the original owner and the vehicle is no more than two or three model years old, even if you have gone over the grace period. Your gap insurance will begin paying out if your car is declared a complete loss. The policy compensates you for the sum greater than the actual cash value paid out by your insurance company, the amount still owed on your loan, and the deductible. In the case of a complete loss, the insurance policy will also kick in to pay off any loans or leases. However, the typical payout is limited to up to 75% of the deductible plus 25% of the car's real cash worth. Loan/lease payback coverage may still need you to pay some cash out of pocket, depending on the remaining loan amount. This is far less likely to occur if you have gap insurance.