In short, debt cancellation agreements (sometimes referred to as “Gap”) are contracts that cover the difference - or the gap - between what your new vehicle is actually worth and the amount you still owe on it. Basically, your new car could depreciate faster than you pay down your loan, so you might end up owing more than it’s actually worth - especially in the first few years of ownership.
In the event of an accident, you might think that car insurance is enough. The thing is - your car insurance covers the actual value of your vehicle, not your loan amount. So if your vehicle is badly damaged or even totaled, your insurance might not cover the entire cost to fix or replace it and you could still owe - on a car you can’t drive. Remember, the moment you drive your vehicle off the lot, it depreciates in value - so your insurance coverage wouldn’t pay the sticker price - it would pay the depreciated value.
That’s where these debt cancellation agreements come in - they pay for the -gap- in coverage. This inexpensive add-on policy would cover the difference so you don’t owe any additional money for repair or replacement and it would allow you to pay off your loan, no sweat!
Typically, these “gap” policies can cost anywhere from $400-$700 but could ultimately save you thousands. Every year, there are approximately 6 million car accidents in the US, that’s 16,438 car crashes per day. Car insurance companies estimate that the average driver will file an insurance claim for an accident once every 17.9 years. This means that a typical driver will likely have a crash by the time they’re 34. That averages out to 3-4 vehicle accidents over the course of their lifetime - so debt cancellation agreements are a pretty good bet.
Find out more about debt cancellation agreements at one of our convenient Folsom Auto Mall dealership locations.
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