If you`re in the market for a new car, there are several options available to you to help protect your investment. Two of the most popular are debt cancellation agreements and gap insurance. Both provide some level of protection, but there are key differences between the two. Here`s what you need to know to make the right choice for your needs.
Debt Cancellation Agreements
A debt cancellation agreement is a contract between you and the lender that cancels your debt in the event of certain covered events, such as death, disability, or involuntary unemployment. Essentially, this means that if something happens to you that prevents you from making your car payments, the lender will forgive the remaining balance of your loan.
Debt cancellation agreements are generally sold by the lender at the time of the loan, and they can be included in your monthly payments. They`re not required by law, and they`re not available in all states. The cost of a debt cancellation agreement varies depending on the lender and the terms of the agreement.
Gap insurance is a type of auto insurance that covers the «gap» between what you owe on your car and what it`s worth if it`s totaled or stolen. For example, if you owe $20,000 on your car but it`s only worth $15,000, gap insurance will cover the $5,000 difference.
Gap insurance is usually sold by the dealership or the insurance company at the time of purchase or lease. It`s not required by law, but some lenders may require it if you`re financing a new car. The cost of gap insurance varies depending on the value of your car and the terms of the policy.
Which is Right for You?
The decision between a debt cancellation agreement and gap insurance ultimately comes down to your individual needs and circumstances. If you`re worried about making your car payments due to unexpected events, a debt cancellation agreement may be the way to go. On the other hand, if you`re concerned about the value of your car and want to make sure you`re covered in the event of a total loss, gap insurance may be the better option.
It`s important to note that neither option is a replacement for traditional auto insurance, which covers damage to your car and liability if you`re in an accident. Both debt cancellation agreements and gap insurance are additional layers of protection that can give you peace of mind and help minimize financial losses in certain situations.
When considering either option, it`s important to read the fine print and understand the terms of the agreement or policy. Make sure you`re clear on what events are covered, what the cost will be, and how the coverage works. By doing your homework and making an informed decision, you can feel confident in your choice and protect your investment.