33 Replies to “Is CAR DEALER GAP INSURANCE WORTH IT? a RIP OFF? on Auto Loans (How to buy a Vehicle)”

  1. Kevin. Video started off good with good info for the customer. You know like I know that everyone doesn't have 20% down to put on a car and that everyone doesn't have great credit. Thought you advice is great about how to go about about buying the car I think the issues is more the way we are groomed as a society. Customer should buy that Corolla for 48 months but they only want the Avalon for 84. Still keep posting. Good info.

  2. Why You Should Never Buy Gap Insurance From A Car Dealer

    Another great article by: SteveLehto (Steve Lehto has been practicing law for 23 years, almost exclusively in consumer protection and Michigan lemon law. He wrote The Lemon Law Bible and Chrysler’s Turbine Car: The Rise and Fall of Detroit’s Coolest Creation.)

    Here is his take on Dealer GAP Insurance:
    In my practice, I review automobile purchase documents all day long. And I cringe every time I see someone who has purchased the overpriced gap insurance from the dealer. They’ve been ripped off to the tune of several hundred dollars and probably had no idea.

    For those who don’t know, a brand new car loses a big chunk of its value the moment you buy it. With the purchase, your vehicle went from being “New” to being “Used” with the stroke of a pen. One more drawback to this is that if your car were to get totaled – say, as you drove it off the lot – your collision coverage will most likely not pay enough on the claim to pay off the underlying loan.

    This discrepancy is why one insurance company runs ads about how they are different because they sell policies (to dimwits who name their cars “Brad”) which will actually pay replacement value for totaled vehicles. Of course, they are different because most insurance policies promise no such coverage.

    As for the typical insurance policy? Go ahead and read yours: It likely says that the company will pay you what it costs to replace your vehicle if your vehicle is totaled. It has nothing to do with what you owe on your car.

    And I get that phone call all the time. “I owe $30,000 on my car and the insurance company is saying they will only pay me $22,000!” Yes, apples to oranges. If $22,0000 will buy you a car just like the one you totaled, then you have been made whole under the policy when they pay you that amount.

    So, to prevent this scenario from happening, the salesperson at the dealer will tell you how you can buy this great product called gap insurance and all you have to do is pay one lump premium… which they will kindly roll into your loan. Should you ever find yourself in this situation, you will be covered. The gap policy will pay out whatever the difference is between what you owe on the vehicle and what the insurance company is going to pay. (Gap insurance is also sometimes rendered as GAP – with the explanation that it stands for Guaranteed Asset Protection but it is just as likely that it describes the gap between what is owed on the loan and what is paid by the original insurance policy.)

    The problem is this: Car dealers sell gap coverage at ridiculously inflated prices. Figures are hard to nail down but dealers routinely charge quadruple what a regular insurance company will charge for the insurance. They then pocket up to one-half of what you pay them for the policy. That’s a hefty commission, my friend. Removing that middleman will save you a chunk of money.

    Gap coverage, if you want it, is substantially less expensive when you buy it from your regular insurance company. And yes, they probably offer it. In fact, all the insurance company folk who claim I have bashed them in my pieces should send me gift baskets for this one. Call your agent and ask how much the gap coverage will be on your new car. Then ask the salesperson at the dealer for a quote on the dealer’s offering. You want to see apples to oranges? Don’t be surprised when your agent says he/she can get you the same coverage through your regular insurer for one-third or one-quarter what the dealership offered. And the dealer’s coverage will probably not be with an insurer you have dealt with before. Bob’s Insurance Shack? Sure – sign me up!

    Is gap insurance a good deal? Depends on your aversion to risk and what kind of price you are willing to pay. But that price will almost certainly be lower from your insurance agent than it will be from the auto dealer. Just make the phone call and save your money, if you are inclined to buy it.

    Follow me on Twitter: @stevelehto

    Hear my podcast on iTunes: Lehto’s Law

  3. You can check mygaprefund.com if you’re looking for a refund. I used them and they were able to get me a refund in 2 weeks. You can even use their free refund calculator to find out your refund amount. Awesome service

  4. Hello… I have a question
    i just walk out from a dealership dealership because they try to forece gap and what they told me was that the finance requires it is true car cost is 13,000

  5. My sister was buying her first car and the car dealer ship wasn’t selling the car that she want to her because of she has no credit. Then we start doing the co-signing paperwork and they realized that her APR would be low because of my credit score. Then magically they decided to have her buy the car in her own name with a bit of down payment.

  6. Just a friendly reminder for those needing to cancel Gap, visit mygaprefund.com to get all the info you need to determine whether you need it or not. Although Gap can be an important insurance to have, its important to know when and how to cancel for a refund.

  7. Thank you so much Kevin Hunter I'd like to take advice I had brushes a tundra last year and they won't approve me without paying $2,550 extra for warranty on that truck and I had 72 month payment I finish my payment in 15 month and ask them to refund the warranty. they give me 1400 I haven't cashed that check yet I just got it I'm trying to go back to them and see if they wll give me my whole refund I need to know is this how things work are they have to pay the full amount back soonest the car is still on that minefactory warranty that we never use their warranty yet.
    Even if they have to go by frame time I didn't even use a 24% of the frame time if they want to be fair they should take 24% net 45% let me know if you can appreciate it thank you so much

  8. From recent experience I purchased GAP insurance through Honda that was 500 bucks. Total losses my motorcycle and still owed 600 bucks. They kicked the claim due to to small of a balance. I kid you not when I was told this I surely thought it was a joke. But GAP insurance use every resource possible not to pay the claim.

  9. I have gap insurance I got it from the dealership I want certain options the sales guy had to go to another dealership to get but I drather have it just invaded something does happen

  10. Never buy GAP, that's waste of money. Always pay my car with cash or take no more than 36 months loans and try to pay for 12-16 months. Even something happen and be negative on loan have saved much more money of not taking GAP on all my previous cars.

  11. this video is idiotic. they're not loaning you more money than what the car is worth. the problem is that if you only make the minimum payments, the vehicle may depreciate in value quicker than the loan value (and if you wreck it – it becomes worthless.) that's determined by what someone is willing to pay for a used vehicle. the dealer/manufacturer has no control over that. if you wreck the car and then quit making payments on it, you have defaulted on the loan. the seller/financier knows you will most likely quit making payments on an undrivable car and so requires you to have insurance to cover the difference between what is owed and what the wrecked car is now worth. it's not a "rip off" nor "scam." it's simply a prudent financial requirement. a friend of mine wrecked his truck and was told by the insurance company that his loan was to be paid in full. I don't think he even knew he had gap insurance. this was good for the lender since my friend was broke as hell and would not have continued making the payments. also, I've never heard of anyone buying insurance from a car dealer.

  12. I am stock with GAP insurance bcause the loan officer ( BOcK toyota) North Attleboro, MA,refused to cancel it- I was misled about cancellation policy and they forced me to purchase Gap insurance- I tried to cancel since day one, i made several trips to the loan officer then his supervisor signed cancellation 3 months later meaning after the deadline – in adfition, they added tire insurance+ other warranties totaling $5000 exrra on a 84 month loan

  13. Gap is a scam engineered between insurance companies and lenders. If you total your car, your insurance should be obligated to pay YOU the amount for the current value of a similar car (and assure you use that fund to purchase one), or find a replacement one. Instead the law requires the insurance to pay the lienholder. But there is nothing in principle that should require your insurance company to pay the lienholder, and not you, and it actually leads to more problems. It puts the consumer in debt, and without a car – which is exactly what the system wants. The problem was that people were getting big checks from insurance companies after totaling their car, and instead of buying replacement vehicles, they were wasting it on gambling and frivolous luxuries. Without a car, it's unlikely such consumers made good to pay their lenders back, what they owe. So in many instances lenders will lose money, if insurance writes a check to the consumer. But lenders will also lose money, and often unlikely to see the gap amount, if the consumer doesn't have a replacement car. But if the insurance just replaced the totaled car with a similar one, or provided a payout in the current value of the car (provided the consumer agree to use that money to purchase a similar vehicle) – then it seems, everyone would be happy. Why should the lender care if I am in an identical replacement vehicle, as long as I am making due payments? Even if they have to repossess the car at some point, they are taking back a vehicle that would be hypothetically identical, to the (then totaled) vehicle they originally provided a loan for.

  14. I have to disagree with much of what you say. I do agree that longer term financing is a bad thing for the consumer, but the reason is not just the dealers issues, its driven by consumer demand for more car than they can afford. Second, negative equity and no cash down is the biggest issue and I agree consumers should stop trading prior to building equity. That said a dealers GAP Waiver is a better option for most consumers.

    First off what a dealer sells is not GAP Insurance, it is a GAP waiver. This waiver is by far better than any personal lines GAP in the market today. Here are some examples:

    1. A dealers GAP covers up to 150% of MSRP vs. the insurance companies 110%
    2. A dealers GAP covers negative equity carry over from the previous loan vs and insurance company that will not cover.
    3. A dealers GAP is for the full term of the loan vs an insurance company who only provides up to 3 years.
    4. If you change auto insurers most other carriers will not provide you GAP since the car is not new
    5. A dealers GAP waiver covers up to $1000 of the customers deductible vs. and Insurance companies
    6. The average annual cost for a GAP waiver is less than $100 per year and if you trade prior to the full term of the loan you will receive a prorated refund. So the total cost you state would only apply if the customer keeps the car for the entire loan term.

    Overall at this time the best deal is to purchase a dealers GAP waiver if the customer finances with the dealer.

  15. Do you have questions about dealer doc fees (document fees)? Do you have any idea how much you paid in doc fees on your last car purchase? With questions coming in daily on dealer doc fees, we published a new video to help car buyers understand how to handle this "money maker" for the dealership. I hope you enjoy it: "What is a dealer Doc Fee? How much should you pay?" Find it here: https://www.youtube.com/watch?v=axko6_OHREU

  16. Just as bad as the other video. Blaming peoples bad choices on an industry designed to suit that same consumer. These are pretty full of fail fwiw watchers

  17. It's always nice to see one of the car dealers (or dealer employees) show up and click dislike on our informational videos. It always lets me know that we've hit the nail on the head. I'm sure you're going to love the next video coming out on extended warranties. Make sure you watch for it!

  18. Car dealers have pushed GAP insurance on car buyers for many years. What some of them will say is that their GAP "is the best," as if a car dealership is the only entity to distribute quality products. With consideration of the many scams, lies, and outright deceit that happens at far too many car dealers, these kinds of statements are quite laughable. There is a difference between some dealer GAP policies, and a GAP policy that you can buy from a typical insurance agent. "Normal" GAP is designed to cover excess loan balances created by high interest, longer term loans, higher miles driven in a year, etc. Dealer GAP is designed to cover every rotten piece of advice they give you in a car deal… like "Yes, you can roll that $5,000 negative equity right into this deal. No problem"… or "Here's our menu of BEST SECURED options you'll need to protect your investment." As if buying a vehicle that rapidly depreciates and is loaded with tons of worthless fluff would be considered an 'investment' by anyone with an intelligent mind. Since dealer set their customers up with financial ruin, they offer a product to prevent the unthinkable: A customer getting stuck with a totalled car, and the thousands of dollars of worthless "product" they packed into their car deal. So, when a dealer says their GAP is different, believe me when I say that the only way you need CAR DEALER GAP is if you were stupid enough to accept all of their advice and suggestions during your car deal, and in your previous car deal. If you aren't that stupid, then just buy GAP at your local insurance company (if you even need it).

  19. Another excellent video Kevin. I'm still working on getting the contract changed to help protect the consumer from this type of scam. Keep up the good work.

Comments are closed.