Jump to content

GAP Insurance


Recommended Posts

Does anyone have this on thier car?

 

When I bought my 60 plate 370 from BMW the were adament I should get it even if I didn't take thier quote. Value is around £17k and just assumed I should get GAP insurance but some people are telling me otherwise. The dealer tried selling it to me but wanted £500 for 3 years, looking online I can get it from ALA (who everyone seem to reccomend) at £114 for 3 years so seems worth it to me.

 

But is it needed on a used car or is it only really for brand new cars on finance?

Link to post
Share on other sites

It's needed on any car where you cannot afford to repay the loan amount, or do not wish to repay the loan amount, in case of a total loss.

 

If you can afford to pay the extra if a total loss then don't worry about it. If you can't, then it's pretty much a must-have. There are three types of GAP though, so it depends on what you want to cover (VRI, RTI or finance top up).

 

 

Personally, if you need a loan to pay for a car then IMHO you need GAP insurance. I've always had it.

  • Like 1
Link to post
Share on other sites

I never really saw the point of gap insurance so I never bothered, although the salesmen very heavily pushed it on the last 2 cars I bought, that along with "alloy wheel & tire insurance" etc.

 

The way I saw it, is that say, when the car was 3 years old I have an accident. The insurance company will either repair or give me money to buy an identical year/spec/mileage one, so id be in exactly the same position as I was before the accident. So why would I need any gap insurance? Thats how its worked for everyone I know who has ever made an insurance claim. I didnt see why I should take out insurance so if i do have an accident I get a brand spanking new zero mile car? My insurance would still go up in price anyway. Its like buying some lottery tickets really on the "off chance" I have an accident.

Link to post
Share on other sites

I never really saw the point of gap insurance so I never bothered, although the salesmen very heavily pushed it on the last 2 cars I bought, that along with "alloy wheel & tire insurance" etc.

 

The way I saw it, is that say, when the car was 3 years old I have an accident. The insurance company will either repair or give me money to buy an identical year/spec/mileage one, so id be in exactly the same position as I was before the accident. So why would I need any gap insurance?

To cover negative equity. Motor insurance doesn't cover that.

Link to post
Share on other sites

Agree with Glrnet, value and period of time you're paying it. A car that has already had the major drops in value that you're paying up over 3 years, you probably wouldn't need it.

 

If you bought a brand new car with a small deposit and paying over 5 years then you could find the insurance company giving you quite a bit less than you owe the finance company.

Link to post
Share on other sites

The way I saw it, is that say, when the car was 3 years old I have an accident. The insurance company will either repair or give me money to buy an identical year/spec/mileage one, so id be in exactly the same position as I was before the accident. So why would I need any gap insurance?

 

Buy a £17k car on finance, due to interest this is now £19k for arguments sake owed.

1yr later due to depreciation the car is now worth £14k but finance is still £17k. You have an accident and the insurance company can find same spec, mileage cars available for £14k and so write you a cheque for £14k. Take a guess where the Finance company will expect that missing £3k to come from? ;)

Edited by Sargara
Link to post
Share on other sites

I never really saw the point of gap insurance so I never bothered, although the salesmen very heavily pushed it on the last 2 cars I bought, that along with "alloy wheel & tire insurance" etc.

 

The way I saw it, is that say, when the car was 3 years old I have an accident. The insurance company will either repair or give me money to buy an identical year/spec/mileage one, so id be in exactly the same position as I was before the accident. So why would I need any gap insurance?

To cover negative equity. Motor insurance doesn't cover that.

 

What negative equity? You buy a car using a loan (loan is usually on person rather than vehicle), it drops in value more than your loan is for. Thats pretty normal I would guess. You have a crash, insurance give you cash to buy an identical car. You go out & get an identical car, so you are surely in same position as you was before. Have same car, same loan?

 

Unless I guess for some reason if its a write off and insurance give you a new car, but then the loan company suddenly demand you repay the loan back in full? Bit strange really as surely as long as the monthly loan payments continued to be paid all is well.

 

The way I saw it, is that say, when the car was 3 years old I have an accident. The insurance company will either repair or give me money to buy an identical year/spec/mileage one, so id be in exactly the same position as I was before the accident. So why would I need any gap insurance?

 

Buy a £17k car on finance, due to interest this is now £19k for arguments sake owed.

1yr later due to depreciation the car is now worth £14k but finance is still £17k. You have an accident and the insurance company can find same spec, mileage cars available for £14k and so write you a cheque for £14k. Take a guess where the Finance company will expect that missing £3k to come from? ;)

 

Okay, so i guess what you are saying is that in the event of a write off, whilst the insurance company will put you back in the same spec/year/mileage car, the finance company at that point in time, for some reason, will decide to call in their loan and expect you to pay it back in full? I thought as long as the payments were continued to be made then all would be fine.

 

I remember buying a motorbike once off a guy and he was paying for it through finance. I spoke to the finance company and they said the loan is on the person, not the car, so he can do what he wants with the bike. He sold it to me, bought a different bike with the cash and just carried on as normal paying his loan. All parties were happy. I guess if the loan is tied to the car so the finance company own the car rather than you then they can decide to call it a day should you stack it. But at any rate, if you took a loan, you know you have to pay back the full amount anyway, regardless of the value of the item you bought with the cash, so should factor that into any finance deal.

 

EDIT: But I can see where Gap insurance is a good idea in this case. It allows you to finance a car you cant otherwise afford and reduce the risks. :thumbs:

Edited by rabbitstew
Link to post
Share on other sites

What negative equity? You buy a car using a loan (loan is usually on person rather than vehicle), it drops in value more than your loan is for. Thats pretty normal I would guess. You have a crash, insurance give you cash to buy an identical car. You go out & get an identical car, so you are surely in same position as you was before. Have same car, same loan?

Not at all.

 

I'll use my own recent example of the 911. 2 year old car, cash price £62K, total finance cost £75K, monthly payment £1K (or something like that). I drive it for 6mths then crash it and write it off. Insurance company pay out market value, let's say it's £58K, and since I've only paid 6mths that £6K I've knocked off the finance deal, leaving me with £69K I owe the finance company. I've only got a cheque from the insurance co for £58K, so I now need to find £11K out of my own pocket to pay them off.

 

Or essentially what Sargara said. You can't carry on paying for an asset that no longer exists: In your friend's case he took out a personal loan, but most people do not.

  • Like 3
Link to post
Share on other sites

I'll use my own recent example of the 911. 2 year old car, cash price £62K, total finance cost £75K, monthly payment £1K (or something like that). I drive it for 6mths then crash it and write it off. Insurance company pay out market value, let's say it's £58K, and since I've only paid 6mths that £6K I've knocked off the finance deal, leaving me with £69K I owe the finance company. I've only got a cheque from the insurance co for £58K, so I now need to find £11K out of my own pocket to pay them off.

 

Expensive motoring. I didnt realise in the event of a total loss, that whilst the insurance company replace the car, the finance company would decide to call in the loan at that point. You`d have thought it would just transfer over to the replacement vehicle and all carry on as normal. Bit mad really, must happen to people at all the time & makes you wonder why anyone would take out finance with such a risk hanging over their head.

 

I know at one point finance seemed to move away from being tied to an asset and more to being a personal loan, so that if someone did sell the car and pocket the cash, or be in negative equity that the finance company would still persue the loan against the individual, but as long as you kept up the monthly payments then everything was fine.

 

EDIT: All this is one reason why ive always paid cash for my cars!

Edited by rabbitstew
Link to post
Share on other sites

Found this, not sure if its a fact thought.

 

If you crash your car and there is still finance left to pay on the vehicle you may be in negative equity if the amount that your insurance company pays out does not cover the amount left on the finance. Whilst you are able to continue to pay off the monthly repayments as per your car finance agreement, many people would rather choose to settle the finance early, thus allowing them to take out another car finance policy for a new vehicle. There are specific insurance products that are available when you take out car finance with Creditplus that can cover this cost such a GAP and RTI insurance.

Link to post
Share on other sites

Yeah, that's not quite right. If you think about it, the loan is secured on the car so if the car no longer exists, then the finance co have no asset to claim in event of you not paying. My own documentation corroborates that, and you also have to inform them before selling the vehicle for the same reason.

 

In practice no-one does the latter (I didn't), as you pay the finance off with the proceeds of the car. I can only imagine the headache you'd get trying to get them to give permission for you to sell the car...!

Link to post
Share on other sites

Yeah, that's not quite right. If you think about it, the loan is secured on the car so if the car no longer exists, then the finance co have no asset to claim in event of you not paying. My own documentation corroborates that, and you also have to inform them before selling the vehicle for the same reason.

 

In practice no-one does the latter (I didn't), as you pay the finance off with the proceeds of the car. I can only imagine the headache you'd get trying to get them to give permission for you to sell the car...!

 

Its not something you think about or hear about, people being left with a few £Ks to find to clear the finance. Pretty harsh when you think you could be in an a non fault accident and then left trying to find money to clear your finance.

 

You would imagine there would have to be some sort of notice sent from the finance to advise when the loan should be cleared by.

Link to post
Share on other sites

I probably don't know what I'm talking about and shouldn't contribute to this adult thread :lol:

 

But do these loans not use the APR rule, where say for instance - I take £1k loan - Have to repay £1300. over 2 years. But if I make contributions on top of my monthly figure (I.e. finishing the loan before the 2 years ends ) I don't have to pay £1300 back, only end up paying say - £1100

 

All these figures are made up btw.

 

 

Or is it only personal loans that do this?

 

TL;DR - Paid the loan off quicker than agreed, reduces the amount of APR you pay.

Link to post
Share on other sites

I probably don't know what I'm talking about and shouldn't contribute to this adult thread :lol:

 

But do these loans not use the APR rule, where say for instance - I take £1k loan - Have to repay £1300. over 2 years. But if I make contributions on top of my monthly figure (I.e. finishing the loan before the 2 years ends ) I don't have to pay £1300 back, only end up paying say - £1100

 

All these figures are made up btw.

 

 

Or is it only personal loans that do this?

 

TL;DR - Paid the loan off quicker than agreed, reduces the amount of APR you pay.

 

The problem is the first year you are only paying the interest. So effectively you could be paying your loan 4 years early but it wont matter as you haven't really reduced the amount you owe. Unless your car has increased in value then you will have some negative equity.

Link to post
Share on other sites

@Grundy: They do, yes. However, they're done in such a way that you're pretty much always in negative equity for a good year or more, unless you get lucky with the car you buy.

Link to post
Share on other sites

Right, this is much more complicated than I first thought. Basically then it's different for each situation. I have a personal loan, much less than the cars worth atm so doing rough sums in my head I dout the value of the car will ever be less than the amount on the loan. In this sense I guess it's not needed.

 

However, if I was to write it off o the next few years and insurance were giving me much less than market value then it's still in my interest to have GAP as I should pocket a couple more pounds from them? For £83 for 2 years or £114 for 3 years I think it may be worth the money just in case?

Link to post
Share on other sites

It's needed on any car where you cannot afford to repay the loan amount, or do not wish to repay the loan amount, in case of a total loss.

 

If you can afford to pay the extra if a total loss then don't worry about it. If you can't, then it's pretty much a must-have. There are three types of GAP though, so it depends on what you want to cover (VRI, RTI or finance top up).

 

 

Personally, if you need a loan to pay for a car then IMHO you need GAP insurance. I've always had it.

From what I've just read briefly on 'Which' RTI or Return to value is the one I want. The other 2 are for financed or brand new cars?

 

With RTi, do you know if they pay the difference to make up what I orignially paid for it? That's what it seems to suggest?

Link to post
Share on other sites

No, that would be an argument you'd need to have with the insurers to make sure you get market value. If it's miles out, then you can bet the GAP co will be doing the same and then that could really drag out.

 

If the value of the loan is always less than the value of the car, and almost without exception if it started off like that then it always will be, then you do not need GAP insurance.

Link to post
Share on other sites

@Ekona, actually just found the asnwer to my own question, again on Which...

 

What is return to invoice Gap insurance?

Return to invoice Gap insurance will pay out the difference between the car insurance payout you receive, if you have an accident or your car is stolen and the original price you paid for the car on its invoice.

For example, if you bought a Ford Fiesta Zetec for £13,995, but a year later had an accident and only received £10,000 from your car insurer, your return to invoice Gap insurance policy would pay the £3,995 difference.

 

To me, that seems like a worthwhile thing to take out. Effectively if I wrote it off in 3 years and say the car was valued at £10k by my insurance then I would get £6k back from them??

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

×
×
  • Create New...