Publish Date - April 12, 2022
Author: Staci Bailey
What Is Gap Insurance? 6 Extended Warranty Products to Consider
Car dealerships sell add-ons such as gap insurance or extended warranty packages. It’s important to do your own assessment and due diligence to determine if gap insurance or an extended warranty will add value to your purchase.
You researched vehicle models, features, and upgrades. You compared financing options, terms, and rates. Finally you have purchased a vehicle and just as it seems you’re in the clear, the car dealer pulls you into the office to discuss additional products to consider.
Car dealerships like to sell add-ons such as gap insurance or extended warranty packages. In most cases dealerships are the middlemen in these arrangements and they get a bonus for making sales. That’s why they offer you these additional products and why they often try to convince you that you need them even if that’s not always the case.
It’s important to do your own assessment and due diligence to determine if gap insurance or an extended warranty will add value to your purchase. But what are these features and how can they benefit you?
What Is Gap Insurance?
Gap insurance is extra coverage that you can purchase when you buy a new car. It protects you in the event that your new car is totaled or stolen and the value of your car is lower than what you owe on your loan. Gap insurance protects you from having to pay for a loan on a car you no longer have.
When you buy a brand new car what you end up paying is usually beyond what the car is worth. Taxes, fees, and financing costs are added to the price of the vehicle and rolled into your auto loan. This is the cost of purchase and doesn’t add any value to the vehicle itself.
Additionally new vehicles depreciate rapidly after purchase. You may quickly find yourself in a situation where you owe significantly more than what the car is worth. If the vehicle is a write off, the insurance company will only reimburse you the value of the vehicle. All the extras you have to pay out of pocket if you don’t have gap insurance.
Gap insurance is hardly ever necessary on a used car since used vehicles depreciate much more slowly after purchase. The best candidates for gap insurance are brand new vehicles which are financed for 60 months or more. A small down payment of less than 25% of the vehicle price can make a strong case for gap insurance too.
Gap insurance is typically offered for no more than two years. Usually by this point enough of the loan would have been paid off that what is owed doesn’t exceed what the vehicle is worth. It is sometimes called guaranteed auto protection and is offered by car dealerships alongside other add-ons such as an extended car warranty.
What Is An Extended Car Warranty?
An extended car warranty kicks in where the manufacturer warranty expires. It will pay for most major repairs and helps to stabilize the costs of repairs. For a price, extended car warranties can provide peace of mind.
There are different types of extended warranties offering different types of coverage. The highest level of coverage is known as comprehensive or exclusionary. A stated component extended warranty lists what is covered. Wrap coverage includes everything that isn’t covered under the powertrain warranty.
Also known as vehicle service contracts or maintenance agreements, most extended car warranties are sold by third-party companies. Auto dealerships like to sell them because they make an additional profit from the sales. Carefully consider the pros and cons of the extended warranty to help you decide if you actually need one.
If you like to change vehicles frequently, there is probably little reason to consider an extended warranty as new vehicles are covered by the manufacturer. Additionally new vehicles generally don’t require as many repairs. An extended warranty may be worth purchasing if you plan to hold on to the car for a long time or if you are buying a used car.
Extended warranties don’t have to be acquired at the time of purchasing your vehicle. Don’t feel pressured to buy. Extended warranties come with different features so it’s wise to do some comparison shopping for the best combination of coverage, features, and products.
1. Cancellation policy
Typically an extended warranty is cancelable within 30 days after purchase. Take a close look at the cancellation policy if you aren’t sure that you want to commit to the purchase or if you’re unsure that the coverage is right for you.
Extended warranties generally have stipulations which cause them to expire after a certain number of kilometers or a predetermined amount of time. Once the criteria is met, the warranty expires and so does the coverage.
Transferability can be an important factor if you ever try to sell the vehicle. Offering an extended warranty with your vehicle can be a nice selling point for potential buyers. Not all extended warranties are transferable. Even if they are, some have specific conditions that need to be met in order for the coverage to be transferred to the new owner.
Extended warranties sometimes come with limitations and these can vary substantially from one policy to another. Some have caps on repairs or on overall benefits. Others may exclude specific parts or components.
Eligibility is generally related to how you use your vehicle. Most extended warranties do not cover vehicles that are used for commercial purposes. Make sure that you and your vehicle are eligible for coverage to avoid problems later.
6. Waiting periods
Some extended warranties come with a waiting period at commencement during which no repairs are covered. Find out exactly when your coverage kicks in to avoid any unpleasant surprises.
Making smart choices when purchasing a vehicle isn’t always clear cut. Luckily you can easily simplify shopping for car financing. Compare quotes from the comfort of home with no obligation to buy. At least this one part of buying a new vehicle can be worry free.