Should I buy gap insurance?
Gap insurance is the difference between the present cash value of a car and the amount still owed on the car. More specifically, it’s the amount that’s the difference between what another insurance policy pays you or your car and what the financing company still has outstanding.
Say your new caddy is stuck by a negligent driver when you drive it off the lot. It’s totaled. You paid $50,000 for the car, and it's all financed to make this easy. If the negligent driver only has $15,000 property damage insurance, you would collect the $15,000 from the negligent party’s insurance, and then the gap insurance you purchased would pay the other $35,000.
For most people, it’s smart to buy gap insurance on a new car. If you get in a car wreck, you won’t be stuck paying off your old loan company.
You don’t have to buy gap insurance through the auto dealer. You can also buy it through a broker. Shop for the best deal.