Auto Loans 101

Gap Insurance

Loan/lease payoff coverage, also known as gap insurance, is often offered to buyers during financing. This type of policy offers buyers protection from negative equity or being “upside-down” on a loan. When you drive your car off the lot, it can lose value immediately, putting you in a negative equity situation. With gap insurance, if you’re in an accident or the vehicle is damaged, you’ll be covered for the difference between the cost of the vehicle and the amount you owe on the vehicle. You’ll need to crunch the numbers to see if this extra policy is right for you, but if you’re driving off in a new car, there’s a good chance you’ll want to have the peace of mind this policy provides.

Extended Warranties

Extended warranties are often expensive and spell big bucks for the dealer. So, you want to know how to determine if you truly need an extended warranty before you shell out hundreds, even thousands of extra dollars.

Who should purchase an extended warranty?

• Long-term owners — Do you keep your car for a long period of time or do you tend to trade it in after a few years?
• Poor planners — Do you have an emergency fund to turn to if something goes wrong with the car? Or will a costly part break the bank?
• Worrywarts — Will you have more piece of mind knowing that major repairs are covered or would you rather pay for repairs if and when they are needed?

Remember, you don’t have to buy an extended warranty the same day you purchase the car. You can shop around to find the best deal and buy later.

Other Warranties

There are several other types of warranties you may also want to consider.

• Manufacturer’s warranty — Repairs for this type of warranty can be made at any authorized dealer.
• Dealer’s warranty — A dealer’s warranty may require that all repairs be done at the dealership. If you travel frequently or don’t want to be tied to a repair shop, this may not be the best option for you.
• Independent or aftermarket warranty — This is a warranty that’s backed by an independent company. Be sure that any warranty offers you access to reliable repair shops. Beware of scams and unsolicited offers for warranties that come in the mail and only do business with a company you trust. Many warranties require you to pay for the repairs up front and you’ll be reimbursed later. You don’t want to risk your money by taking a chance on an unknown company.