I’m trying to decide between two options for GAP coverage for my 2022 Hyundai Santa Cruz, which has around 38,000 miles on it. The dealership offers total GAP coverage for $115/month, while Progressive provides partial coverage (up to 25%) for about $20/month.
My loan balance with the dealership’s GAP coverage comes to around $26,000. I’m wondering if the higher cost of the dealership’s GAP coverage is justified. I know it’s difficult to forecast whether I would actually benefit from it, but I feel that lower monthly payments would allow me to pay off the loan much quicker.
What do you think? Is the extra cost for the dealership’s GAP coverage worth it? Thanks for your input!
When deciding between full GAP coverage from the dealership and partial coverage through your insurance, there are a few factors to consider:
Cost Difference: The dealership’s GAP coverage at $115/month is significantly more than the insurance option at $20/month. Over a year, that’s a difference of $1,140. Consider if this additional cost is manageable within your budget and whether it provides value given your financial situation.
Coverage Amount: The dealership’s GAP insurance covers the entire amount you owe on the loan in the event of a total loss, while the insurance option only covers up to 25%. If you were to get into an accident and total the car, you’d be responsible for the remaining balance on your loan beyond what the insurance covers. If you owe more than the vehicle’s value, the dealership’s option gives you peace of mind.
Loan Amount vs. Vehicle Value: Given that your loan is $26k and you have a relatively new vehicle with about 38k miles, it’s worth considering the depreciation of the car. New cars typically lose value quickly, so if your vehicle were to be totaled, the GAP insurance could help cover the difference.
Risk Tolerance: Assess your comfort level with risk. If you feel uneasy about potentially being liable for a significant amount in the event of a total loss, the dealership’s option may provide added security. If you’re more risk-averse and can manage the financial implications, the cheaper insurance option could suffice.
Long-term Financial Goals: If reduced monthly payments allow you to pay off the loan sooner, that might be a better long-term strategy, especially if you can invest that savings or pay down other debt sooner.
Ultimately, there isn’t a one-size-fits-all answer. Think about your financial situation, risk tolerance, and how much peace of mind you require when making your decision. If you are leaning towards the cheaper insurance option, ensure you understand the limits of the coverage. If you still have concerns, discussing it with a financial advisor could also help clarify what’s best for your circumstances.