Gap insurance - car purchase

ChrisB_4

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I recently visited VW for a car and was offered finance under VW terms - not good but not bad APR, etc. However, they mentioned something called "gap insurance" which is to insure that if you have an accident (fully comp you must be) or you reach the end of term, then they guarantee that you won't be left with an additional debt if the car insurers refuse to pay enough to return the car to market value.

The finance guy refused to give me an APR figure for the loan, just the flat rate of 4.2%. The flat rate is not cumulative of course, and appears much lower.

Ok.. it's 395 .. 400 quid! added on top of your loan. So 9000 loan = 9395. This is an increase of over 5% and worse! you pay interest on the insurance!!! and no doubt IPT too.

It's really opening my eyes to the way that main dealer's operate. I have already reported them to VW UK for this practise of not declaring APR. The gap insurance is apparently a "standard" recommendation (from the dealer's mouth not VW).

Has anyone had any experiences with gap insurance?

nadnad

Yes I know what Gap is - my husband sells cars. By law now (FSA) car dealers have to recommend either one or other of the 2 types of GAP. The first is financial gap or shortfall gap i.e. if the car is written off then a Gap policy will pay the remainder of the term. the second is write off gap i.e. if your car is written off within 3 years of purchase the insurance company will only pay the PRESENT market value of the car - if you have GAP this pays you back the original price you paid for the car. This is by no means a ripoff and most people who have had experiences of accidents and then not getting the money back or being stuck with huge finance repayments are very glad to take it out.

ChrisB_4

The huge finance repayments wouldn't be there though, because you would get some payout from the insurance.. albeit possibly not all. All insurers try it on with the value - and then cave in if you wait a few months. They try to smoke you out.

I still see this as insuring your insurance if you see what I mean. The insurance underwriter might EVEN be the same company - they'll be laughing to have an extra 400 quid (plus interest) in their pocket.

A question - because the finance company have "guaranteed" a minimum final value, can we argue to the insurers (when not taking out gap insurance insurance) that if in the middle of the PCP term we can use that figure to interpolate a "market" value - which is "guaranteed" at the end of the term. I don't know, but wouldn't the insurance companies listen?

Anyone had an accident under finance and got stiffed?

nadnad

I beg to differ - the huge finance repayments would be there - most cars drop at least a couplde of thousand in the first year - this combined with interest you would be paying on the rest of the term means that your own insurance company will not pay out nearly as much as the amount of finance possibly left on the term - my husband has had people thank him for recommending this after they have bought a car, taken out finance (some high risk people at 12%APR up to 19%APR!!) the car has been written off within a year or so and they would have been buggered basically had it not been for GAP.
I have to say though when he first explained GAP to me I scoffed and said the same as you that it was insuring insurance - but so much of this goes on now I say the same of "protected no claims" that is definitely insuring insurance!

ChrisB_4

protected no claims is playing the game.

This is different - they cash upfront- 400 loan. I still dont' see your link between APR and how loan trouble they're in. So what, it's 19% APR, great luck, you've crashed the car 2 years early - means it's paid off.. or at least partially, unless you break the mileage agreements. The greater the APR, the greater the saving when your insurance payup beacuse they sort you out a debt.

On a 10k car, 400 quid is alot. It's too much. It's an insurance insurance as you say. Is your husband a salesman?

ronnie_2

the gap insurance provides you with the comfort of knowing that if your car is stolen (not recovered) or written off within the first 3 years the gap will pay the difference from what your insurance company pay out.

AuntyJean

Example

Car purchased through XFinance Co. for £5,000.00 payable over 3 years. Total amount required by XFinance Co. is £6,750.00. Monthly payments £187.50

After 18 months car stolen and written off. Market value (according to Glass's Guide or CAP whichever is used by the insurance company and their engineer) is £2,750.00. XFinance still want £3,375.00 to settle the finance agreement. GAP insurance would pay the £625 difference.

NB they will not cover the excess which is payable by policyholder.

ChrisB_4

so to not take gap insurance costs me 225 quid over the 400 for the insurance if the car is stolen or written off. I'd rather live "dangerously" personally here.. it's not enough to justify the 400 (plus interest!) cost. It's a rip-off I still think - insurance insurance. It's like the reverse of the compensation culture - you got to take a risk personally sometime, for example leaving the house in the morning.

nadnad

Just an example - my husband talks about people being "upside down" with their finance - in otherwords they owe a lot more than the car is worth - sometimes as much as a couple of grand and not just the £225 as demonstrated above - its these cases were gap is a good idea - when people are getting finance for maybe 5 years at a ridiculously high rate - the car is written off inside the 3 years tht the gap protects and they maybe owe £1000+ - this is very very common - these people gladly take our GAP insurance. - And let me just say for a person who use to scoff about this as much as you do - I have been converted - my OH tells me GAP stories all the time - where people are sooooo glad they got it!

blue_haddock

Nadnad - don't take this any meaning any kind of offence but your husband sounds like a typical retail car dealer. Of course he thinks GAP cover is a good idea because he'll get a kickback from it. Yes he may have a few customers who have saved money as a result of it but how many have bought it and never used it?

Under FSA regulations you do not have to offer GAP insurance but merely assess their demands and needs of the customer and on the basis of this assesment then offer products that would benefit the customer.

The price of £400 is about right for a dealership however they will probably pay around £60 for the policy and the rest is pure profit - have a google for "return to invoice GAP insurance" You will find policies for at least half the VW price.

nadnad

I do take offence actually. Yes he gets a percentage of the profit made on GAP - of course he does his income is almost totally commission based so he would be a bad salesperson if he didn't recommend it. And actually FSA regulations state that any insurance product available have to be expalined to the customer if it will be of benefit to them - and GAP by nature is of potential benefit to everyone. You seem to be thinking along the lines of "typical car dealers" being dodgy - a very old fashioned view - somebody has to be a car salesman do they not?!

As to your "Yes he may have a few customers who have saved money as a result of it but how many have bought it and never used it?" - well isn't that true of all insurances - I've never touch wood had to make a claim on any policy - buildings, contents, car, holiday, credit card, life, sickness and unemployment, ! - but we all have these insurance policies and no one makes a big deal about those - the point is we are living in an increasingly cautious world and insurance is a way to make us feel better. Any one who buys GAP has made an informed decision - in fact as I've mentioned - a lot my husband sells GAP to have had their cars written off, stolen or whatever in the past and have been left with a problem - they see GAP as a solution to that problem.

As for the prices you quoted - again its the same for any insurance - large varioations in price.

I just don't see what the outcry is - GAP isn't an insurance you HAVE to buy - its an option - every one has a tongue in their head - you can use it to say no to the salepeople - or maybe you haven't thought of that!