Gap Insurance, Now More Than Ever

On November 9 the Wall Street Journal published an article which should be a wake-up call for anyone buying a new or newer vehicle on credit. "Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis by piling on debt to such a degree that it off and exceeds the car's value. This phenomenon – referred to as negative equity, or being under water – can leave car owners trapped." The article goes on to point out that one third of people who traded in cars to buy new ones in the first 9 months of 2019 had negative equity, compared with 28% 5 years ago and 19% a decade ago. "Rising car prices have exacerbated and affordability gap that is increasingly getting filled with auto debt. Easy lending standards or perpetuating the cycle, with lenders routinely making car loans with low or no downpayments that can last 7 years or longer.The authors of the article focus mostly on people voluntarily trading cars in to buy newer ones while they still owe money on the old one. As a personal injury lawyer I am more concerned about my clients who own newer vehicles, who owe a lot on them, and then get involved in a car crash where their vehicle was totaled. The person causing the crash is only liable for the reasonable value of the vehicle, NOT THE AMOUNT OWED ON THE LOAN. Gap insurance is relatively cheap and can be purchased from your own insurance company when you first call to insure the vehicle. That gap insurance will pay the difference between the loan amount and the value of the vehicle at the time of the crash. That way a prudent buyer would have enough money to pay off the loan completely.


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