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Car Finance Gap Insurance
IS MY COMPREHENSIVE POLICY NOT ADEQUATE? When you buy a car on finance, you will be committing yourself to an extra layer of finance charges which are spread over the term of the finance period. But, when deciding your car's value, your motor insurance company will not be interested in how much you owe your finance company. What you owe your finance company has no bearing on the latest value of your car. Unless you have a special policy, they will only cover you for the car's market value at the date of the loss. Some say that as soon as you drive off the forecourt, your car has already depreciated in value. American Express has stated that the average car loses £500 a month in value. If you are not knocking £500 a month off the capital value that you owe to the finance company (in addition to paying them their interest) then a "gap" is created. The gap is at its most extreme in the early period of a finance agreement.
The gap exists in the form of the difference between the money that you owe to your finance company and the limit that your insurance company may pay out if the car is a total loss e.g. by accident or theft. It is no help if the total loss is another driver's fault. The other driver will only be held responsible for the total loss value of the car. You will have to bridge the gap out of your own pocket.
If your car does become an uneconomical proposition for repair, your insurance company will contact your finance company and settle with them first. They are the legal owners of the vehicle. Until you have paid them off, the gap between the amount that the insurance company pays and the balance that you still owe, is your responsibility. If the total loss value of the car falls short of the finance company's demands then you will still be obliged to fill the gap with the finance company - and you will now have no car!
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