Are you leasing your car? More and more Americans are. A recent report published by Experian Automotive found that over 28% of new vehicles financed in Quarter 4 – 2013 were leased, the highest level since the company starting keeping records. While leasing luxury automobiles has always been popular, between 2008 and 2013 leased compact car numbers doubled and subcompacts tripled. That’s a significant change. And it’s predicted that leasing will boost new car sales for the foreseeable future as well. Why? Appealing leasing offers, less upfront money, and especially, lower monthly payments.
Don’t let the low entry points blind you to the possible downsides on the other end though. Exceeding your mileage limit, paying higher insurance premiums or paying wear-and-tear fees if you’re hard on your car, may result in spending more on your lease than if you’d purchased the car. And you have no equity in the car when your lease expires as well.
There are some things to keep in mind about your insurance coverage when your lease, too. Some leasing companies may require you to maintain higher damage deductibles and greater liability insurance coverage. If you do get into an accident, it’s quite possible that you could end up owing more on the car than it’s worth. That’s where gap insurance can help.
What is gap insurance? Most people don’t know what it is unless they’ve experienced a total loss of a vehicle due to theft or collision. When you drive your new vehicle off the lot your insurance is probably already inadequate. We all know that that your “new” car becomes a ”used” car as soon as you leave the dealership and its value drops significantly, usually thousands of dollars. Your auto insurance, on the hand, is intended to pay the current cash value to the lender, not the amount borrowed.
According to BankRate.com, “If your vehicle cost $25,000 new, your insurer would probably pay about $18,000 for a total loss during the first year. That’s a $7,000 shortfall. Depending on the amount of your down payment (or trade-in equity), you would still be responsible to your lender for the balance of the loan.”
Enter gap insurance. If you have it, the insurer pays the difference between what you owe and what the car is worth in the event of an early total loss claim. You will pay more for it, typically around 5%, which means only about $20-30 additional premium and this declines as your car ages. While this is often sold by the dealership at the time of sale or lease, it can be purchased at any time and insurance company rates are cheaper than those of the original manufacturer.
If you lease your vehicle or didn’t put a significant amount of money down on your purchase, you should have gap insurance. Want to know more about gap insurance? Freedom Insurance can help! Call us today.