It’s no secret that the vast majority of new cars begin haemorrhaging value the moment they leave the forecourt. In fact, three years is all it takes for the average new car to lose up to 60% of its value. Depreciation is all part and parcel of vehicle ownership, but has a habit of being particularly severe with some new cars.
Across the UK, more motorists than ever before are turning to affordable car finance deals to buy quality new cars. Flexible new car finance options even exist for poor credit applicants. Nevertheless, many are blissfully unaware of the fact (at the time at least) that car insurance doesn’t typically cover the purchase price of a vehicle.
If your car is written off or stolen, your insurance policy will only cover its value at the time of the incident. Even if this is 60% less than you actually paid for the car, that’s the total coverage you can expect. At which point, you may not even be close to paying off the car finance deal you took out in the first place.
What is Gap Insurance?
This is where gap insurance can help. In the simplest terms, gap insurance covers the difference between the actual price you paid for your car and its value at the time you make a claim on your insurance. If you paid £25,000 for your car, you’ll be covered for the full £25,000 – rather than the say £10,000 or so it’s worth at the time of the incident.
Of course, taking a gap insurance means paying an additional premium, on top of your standard auto insurance. Nevertheless, there are certain instances where it’s a price that’s definitely worth paying.
If you fit into any of the following three brackets, you may want to consider investing in gap insurance for your car:
1. You only ever buy brand new cars
Gap insurance exists for the simple reason that you cars depreciate in value so rapidly – often up to 50% within the first year. This means that in the event of an accident or theft, you could be kissing goodbye to half of your investment in less than 12 months. If you only buy new cars and would only buy another new car to cover a stolen or written-off car, you could definitely benefit from gap insurance.
2. You’re buying a car that depreciates even faster
Certain makes and models of cars are known to hold their value better than others. The list changes from one year to the next, but is worth considering when buying a new car. If you plan on purchasing a vehicle that is pretty much guaranteed to lose a lot of its value in a short period of time, it simply makes sense to protect your investment with gap insurance.
3. You plan on using car finance to fund the purchase
Last but not least, gap insurance is an absolute must when purchasing a new car on finance. This is because you could otherwise find yourself in a position where you owe far more money than your insurance policy is willing to cover. If the worst should happen, it’s important to ensure the total value of your car finance deal is covered – not just the value of the vehicle at the time of the accident or incident. – by poorcreditcarfinance.co.uk