Buying A Car: Is Gap Insurance REALLY necessary?

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GAP Insurance – When buying a new or used car is it really necessary?

Purchasing a new or used car is something we all likely plan to do in our lifetime, but it could be the little things we find unnecessary to add to the loan that leave us wishing we had made different choices. Guaranteed Auto Protection (GAP) is insurance that covers the difference between the actual cash value of a vehicle and the balance still owed if you ever were to suffer a total loss. For example, if you are financing for 60 months or more, have a high interest rate, or are putting down little to no money, GAP insurance is HIGHLY recommended.

Purchasing GAP insurance could save you thousands in the event you’re ever in an accident or your car is stolen. GAP coverage is relatively cheap when purchased at your credit union, but can be expensive at a dealership (up to $900 or more). In the event of a total loss while you still owe a significant amount on the car, GAP coverage will prevent you from continuing to pay on a car you no longer even own!

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Credit 101: Part 5 – The Dollar Cost of Your Credit Score

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Understanding the Real Cost of Your Credit Score

Today, every financial institution charges interest to borrowers as a return for lending money.  The amount you borrow (the principal) + interest + length of your loan (term) = your total cost of credit.

Let’s assume two people borrow $20,000 for five years (60 months) to purchase a vehicle.  Borrower #1 has a high credit score, allowing them to have a lower interest rate.  Borrower #2 has a lower credit score, which will make their interest rate much higher:

  1. At 2.9% interest, the first borrower will pay a total of $21,509.62 for this vehicle by the end of the loan.
  2. At 14.9% interest, the second borrower will pay a total of $28,487.49 for this vehicle by the end of the loan.

Based on this example, you can see that not taking care of your credit comes at a large cost.  By simply taking care of your credit you would save nearly $7,000!!

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