Gap Insurance - which product?

rkc86

Hi guys

I've bought a used BMW 65 plate last week on a 3 year HP finance at £18,800 at a dealership and I'm looking to purchase gap insurance but I'm unsure which product to go for. The finance company quoted me return to invoice gap insurance but looking elsewhere cheaper. I've come across a competitor which quoted me combined total loss gap insurance at a cheaper rate with an extra year. Can someone explain how this works?

Price of car = £18,800
Deposit = £8,500.
Finance credit = £10,300

Interest charges = £2,252.40
Acceptance fee = £340
Title transfer fee = £10
Total charge for credit = £2,602.40

Total amount payable = £21,402.40

So with return to invoice & combined total loss gap insurance, if my car was stolen or written off, how would my settlement be?

Which one will suit me best and should I go for 3 or 4 years or more?

Many thanks!

DrEskimo

It will cover the difference between the insurance payout and the invoice price of £18,800.

So say in a year your insurance offer £12k, then your GAP will offer you the additional £6,800. You would then use that to settle the outstanding finance, which you can calculate with a settlement calculator, but after a year it would be about £7,500.

But more importantly, why in God’s name are you borrowing £10k at 14.1% APR....?!

rkc86

Hi, thanks for your reply.

Could you explain what you mean by after a year it would be about £7,500 please?

I thought my APR was around 7% not including the acceptance and title transfer fee for the 3 years. Have I been mis-sold? I was hoping to to pay it off before the 3 years but can only do so after the first 6 months.

So would return to invoice be suitable for me? Will it cover the £2,602.40 interest or will that not apply if the outstanding finance is settled by the gap insurance. Or is combined total loss gap insurance applicable in this case?

It's the interest I'm worried about if I'm out of pocket if it's stolen or written off.

Thank you.

forgotmyname

If the finance is for 3 years then any insurance payout wont be less than the amount of finance you need to pay.

7% flat rate? ouch.... Your bonkers.

DrEskimo

So you’re repayments are about £348 per month? He settlement of £7,500 is what you will still owe to the finance company after 12m of payments. So you would have made (12*348) £4152 worth of monthly payments, then settle the outstanding £7,500, meaning you have paid about £11,652, £10,300 of the original amount borrowed and £1,300 in interest over those 12m (by settling early, you avoid the full £2252 interest).

If it’s from a car dealer, then it’s likely they are quoting you the flat rate, not the APR. The flat rate is typically half of the APR. Plenty of links that will explain the difference better than me!

I haven’t looked into total loss gap, but given you’re large deposit and the fact that it’s HP, so you don’t have a balloon payment, I don’t think you will benefit from it over standard RTI. I’m not 100% though.

Might as well get 4 yrs if it’s not much more than 3yrs.

rkc86

I see. It was the dealership's choice of finance (Close Brothers or something like that) at the time so I guess it's too late huh? I'm not all clever with flat rates, APR, etc. What's the rate these days?

Just say for example, I've purchased RTI for 4 years. My car gets stolen after 1 year and it's worth 15K at the time. I would have paid 12 x £350 = £4,200 including the interest which leaves me £8,400 owing to the finance company. Does the gap pay for the £3,800 (£18,800 for the price of the car bought) and that will be the end of that with the finance company? Or is there interest to pay on top of that? So sorry to bother with numbers and all that.

Thanks again!

DrEskimo

rkc86 wrote: »

I see. It was the dealership's choice of finance (Close Brothers or something like that) at the time so I guess it's too late huh? I'm not all clever with flat rates, APR, etc. What's the rate these days?

Just say for example, I've purchased RTI for 4 years. My car gets stolen after 1 year and it's worth 15K at the time. I would have paid 12 x £350 = £4,200 including the interest which leaves me £8,400 owing to the finance company. Does the gap pay for the £3,800 (£18,800 for the price of the car bought) and that will be the end of that with the finance company? Or is there interest to pay on top of that? So sorry to bother with numbers and all that.

Thanks again!

It will depend on your credit history, but if it's good you can get loans as cheap as 2.7% APR. Check out MSE's loans section.

For context, borrowing £10,300 over 3yrs at 2.7% APR will cost you just £429, with a monthly payment of £298, compared to the £2,252 with a monthly payment of £348....a saving of over £1800! Not to mention no fees of £350. Oh and it's not secured on the car.

You can cancel any finance within 14days, but you need to be sure you can pay off the car. Worth having a conversation with them about it, as 14.1% is insanely high...

You settlement won't be £8,400, as you won't pay the full £2,252 interest. That's if you maintain the finance over the full 3yrs. If you settle after just 1yr, you only pay 1yrs worth of interest, which is about £1,400. Here is a calculator to help you work it out. But yes, the principle is correct. The GAP will cover the shortfall between the insurance pay out and the invoice price. Basically it insures against depreciation. You won't pay interest on top, because you are in effect, settling the loan early. You have paid the interest for the first year through your monthly payments of £350 (a proportion of this is going towards paying off the £10,300 capital, and a proportion is going towards the interest).

As far as GAP goes, It's fairly cheap from the likes of ALA, gapinsurance, etc, and generally not a bad product as far as non-mandatory insurance products go. It can protect you from thousands in depreciation costs, for relatively small outlay, but obviously the risk of write-off or having the car stolen is typically low, on average...