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 a small or no down payment. 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. Since you will have paid off the old loan with a new one, you may be entitled to a refund, again, only if you paid for a gap policy in full upfront. Sure that the loan balance 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 pay off your current loan early. Check with your lender to see if that clause is in your car loan contract. Need to pay fees for the new loan. Experience a temporary dip in your credit score. Struggle to find a lender who will refinance your car if it’s more than ten years old or has 100,000 miles or more on it, or if the loan is less than $7,500 or more than $100,000.
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