Gap Insurance is a completely optional collision insurance for newer cars. It helps cover the difference between the lease or loan due and what insurance companies are willing to cover after an accident. For example, if your car is totaled and you still owe your finance company $20,000 but your insurance only gives you $14,000, you’d be responsible to pay the remaining $6,000. If you have Gap Insurance, the difference would be covered (GAP) and you’d be left debt free and can move on to obtain a new vehicle. It is typically an extra $20 a month on purchases and at times available through your credit union. For this reason, we always recommend Gap Insurance.
Buying A Car: You would be required to pay tax on the entire amount of the purchase. Buying is recommended if you drive more than 18,000 miles a year and you plan to keep the vehicle for more than 5 years. If you are business owner or are self-employed you can write off the depreciation of the vehicle each year when it is purchased through your business.
Gap Insurance* is not included and purchased at your own will.
SHOULD I LEASE A CAR?
Monthly payments are generally 30-45% lower ($140-300) and are due only in proportion to the amount the vehicle is depreciating. You’re only taxed on the monthly payment as opposed to the entire purchase.
Depending on the terms of your lease, you can get a new car every two to three years without having to worry about trading it in. This would save you an average of $4,000-$7,000 in negative equity in comparison to if you purchased and later decided to trade.
For example, if you drive 20,000 miles a year and are only given 15,000 miles per year then you would be paying 0.20 cents per mile that you go over, which would amount to $1,000 (0.20 cents x 5,000 miles). In our opinion, this is a lot better than being upside down $4,000-7,000 just to say “you purchased.” Great investment when you’re putting $0 down. You also never have to worry about getting new tires or other big maintenance services. If you are a business owner or are self-employed and the vehicle is leased under your company, you can write off the entire monthly payment amount of your lease. Gap insurance is always included and wear and tear warranty is optional (and can be included in your monthly payment).