If you are like most people you are going to finance your new car. Even if it is a pre-owned car, certified or otherwise, you are probably going to take out a loan from either a bank or a finance company. Within the first few years there will be a difference between the car's value and the loan balance.
Yes cars do drop in value as soon as you drive them off the lot. The economy has hit everyone hard and while once people used to take out a three or four year loan for a car, now they are taking out five to six year loans. More often than not, people are leasing cars instead of buying. Car deprecation outpaces the balance in the beginning of the loan.
Banks and finance companies make their money on the interest of the loan charged over time. Furthermore, they know accidents happen so they make it compulsory for you to buy comprehensive car insurance. They are just protecting their interest. How do you protect your? GAP (Guaranteed Auto Protection) insurance fills in the gap between what you owe and what the car is worth.
On a leased car (original cap value of 22,000) with an estimate residual value of $10,000 at the end of a 3- year lease (at 8% interest on financing), you can expect to pay around 430 per month. If you have an accident six months after the start of the lease, and the car is totaled, you will have a serious bill to pay. You will have only paid $2580. The difference, is $23, 760(cap x 8% interest) - 2580= $21180 the lease company will want to be paid. The average car depreciates about 8% the day you take it and another 20% during the first year of driving. For a 22,000 car that means the insurance company is likely to max the payment somewhere between 15,000 to 18,000 depending upon the make and model. At $18000 you will ask the leasing company to roll the $3000 difference into the financing of your next lease, or you can pay it out of your pocket.
On the other hand you can purchase GAP insurance. When you go online and request car insurance quotes for your new car, make sure you request quotes for GAP штыгкфтсу. Then you can decide if the few dollars a month for the first two or so years is well worth the investment.