Mind the Gap
published on 05/09/2014
The cold hard fact is that as soon as you drive your new car off the lot, it depreciates in value. How much it depreciates varies from car to car depending on a number of factors (for another article).
During the term of a loan, many car owners find themselves upside-down, meaning they owe more than the vehicle’s insured value. This is especially true when the car is financed for more than 90% of the purchased price or its value.
Your financial situation can potentially turn south if your car is totaled in an accident before your loan balance levels out with the value of your vehicle.
Good news, there is a solution – Guaranteed Auto Protection or GAP*.
A GAP policy can be taken out on new, used and refinanced vehicles, motorcycles, boats and RV’s. It helps in the event of a loss, covering the difference between your car’s cash value (primary insurance company settlement) and the outstanding balance on your loan, according to Kevi Zufall, AVP, Consumer Loan Officer, RCB Bank.
“This is a little known product that can offer peace of mind for many borrowers,” said Zufall. “Without GAP insurance, if your car is totaled and you still owe more than your car is worth, you could owe hundreds to possibly thousands of dollars out of pocket. GAP covers that difference.”
GAP is worth considering if you plan to
- Take out a long term loan (60 months or more)
- Roll over negative equity into a refinance
- Purchase a vehicle that depreciates fast
Take this example. You purchase a car for $25,000 and make $1,000 down payment. Your loan is 60 months with 1.79% APR†, which makes your monthly payments $417.71. Six months later, you’re in a wreck and your car is totaled. At the time of your wreck, your car is valued at $20,000 (20% depreciation). Your insurance policy has a $1,000 deductible, and so they write you a check for $19,000. This leaves you with a $3,158.40 outstanding balance on your loan and no car.
Without GAP, you’re responsible for paying the outstanding loan balance. If you purchased GAP when you took out your loan, your outstanding balance and insurance deductible* is covered by the policy. That’s a load off your back.
“RCB sells GAP for $388, a discounted price compared to dealerships, Zufall said. “That’s a small fee that could save you an abundance of money in the long run.”
GAP isn’t for everyone. If you have a short-term loan or paid a big down payment, GAP might not be the best fit for you. The thing to do is talk to your lender.
To learn more about GAP coverage stop by your local RCB Bank and chat with one of our lenders. You can also call us at 855-BANK-RCB. We’re happy to help, at no obligation.
For more savings tips and other financial articles, go to www.RCBbank.com/newsroom.
† Annual Percentage Rate (APR) as of 05/01/2014 and is subject to change. APR includes a 3% discount for qualified applicants and automatic debit of monthly payment from an RCB Bank checking or savings account. Rate could increase if automatic debit is cancelled at any time during the term of the loan. Certain restrictions apply.
* GAP Auto Coverage is not an insurance product. Consumers are required to maintain regular car insurance as a condition of their loan. For this article, information on GAP coverage is based on the Frost GAP program, www.visualgap.com. RCB Bank offers GAP coverage through the Frost GAP program. For vehicle eligibility and coverage details see your local RCB Bank lender. VisualGAP covers the primary insurance deductible, up to $1,000, in all states other than the state of New York. Check with your lender to see if GAP covers deductibles in your state.