How Do You Get a Gap Insurance Refund After Refinancing?
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What is Gap Insurance and How Does It Work?
You got a vehicle that depreciates speedily. When you bought your car, truck, or SUV, your lender may have required you to purchase gap insurance, especially if you purchased a vehicle that depreciates more quickly than average. You made no down payment or a small one. You may have purchased gap insurance if you didn’t pay a down payment (or paid just a small one) and chose a long loan term. In this situation, there’s probably going to be a period of time when you could owe more on the vehicle than it’s currently worth.
An Example of How Gap Insurance Works
You’re buying a car for $30,000. You put 5% ($1,500) down and borrow $28,500. At a 4% interest rate for a six-year term, your monthly payment is about $445. After a year, your outstanding balance would be about $24,200. With a depreciation rate at 20%, the value of the car at that time would be about $19,200.
Gap Insurance Refunds
Paying off, trading in, or selling the car that has the policy. Refinancing your car loan for a lower interest rate or lower monthly payment, because auto refinancing pays off your old loan with a new one. Carrying a loan balance that is less than the insurance coverage you have on the vehicle, ideally by at least a couple of thousand dollars.
What Happens to Gap Insurance When You Refinance an Auto Loan?
First, does your new lender require gap insurance on your loan? Next, if it’s not required, ask your car insurance company what it would pay out if your car was totaled. Compare that amount to what you owe. If you owe less than the car’s value or the numbers are fairly close together, decide whether it makes sense to get a new gap insurance policy. If you owe more than the vehicle’s value, is this a number that you could afford to pay in addition to costs associated with getting a new vehicle?
Refinancing an Auto Loan Today
Lower your interest rate and/or your monthly payments. Get a different loan term. Free up money to pay down other debt. Switch lenders if you aren’t happy with your current one.
Need to pay a prepayment penalty if you refinance a car loan that features a prepayment penalty clause. Need to pay fees for the new loan. Experience a temporary dip in your credit score if the refi lender conducts a hard pull inquiry into your credit report. Struggle to find a lender who will refinance a high-mileage car, a car older than 10, or an auto loan balance of less than $7,500 or more than $100,000.
Other Points To Consider
The best time to refinance auto loans will differ for everyone. Each person’s individual needs will determine how long to wait before refinancing. If you can get a lower interest rate, then it often makes sense to refinance. If you’re struggling with high payments, a lower interest rate can help. Refinancing for a longer term can give you a lower monthly payment, but you may pay more in interest over the life of the loan. It may be possible to have someone take over your car loan.
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