Just learned about gap insurance.... it's a policy you buy with a new car to which pays the difference between the actual value of the car and the amount owed on the car should the car be totalled in an accident.

I asked a salesman at Troncalli Infiniti about it. He said it's automatically included on leases, and available on new car purchases for a "minimal" amount, something like $10-15 month.

Anybody know much about this?

Got me to thinking... if I had $5000 to make a down payment on a new car which I plan on keeping for a long time, I'd probably be better off NOT making a down payment (or the bare mininum downpayment) and then putting the $5000 aside to pay my car note and other bills should I be unemployed for a long period of time (and earn interest on it).

Of course making little or no down payment makes the monthly payment higher... but if you can add an 7yr/100K extended warranty and finance over 6 years (if the interest rate is reasonable)......

Are there any downsides to this approach? I'm not planning on buying a new car anytime soon, but seems like a good plan when the time comes.

The downside would be that you would have to earn more interest on the money than the interest rate on your loan. To do this you would probably have to assume a lot of investment risk and could lose part or all of your money. You would probably get more favorable terms on your loan or price by putting more down. The best deal is to keep driving your old scoot and save up enough to pay cash for the new car when you can swing it. If you're waving cash at the dealer you'll get your best deal, won't pay interest and don't have to account to your loan company for insurance, etc.

Point taken, but guess I need advice for my socio-economic situation: almost 30 years old :rant , need cash for future house/condo purchase (or rainy day money), willing to pay a reasonable interest rate (good credit history) on a new car and avoid surprise repair expenses, etc. etc.

I promise I'll get my money's worth out of the old Q first!!!

Interesting analysis to work on...

I also like the idea of paying cash for a car, or any other depreciating asset for that matter; however it isn't always possible when you look at life situations.

The Gap insurance sounds like a new profit item for an insurance company, but it certainly is possible to be upside down on your retail car value vs loan balance. This gets worse the longer you finance the car, the higher the interest rate, and the less you put down of course.

If you really have a more attractive (higher interest rate, appreciation potential, etc.) investment, then you could put the money there instead of down on the car. This might be a good bet if you are buying a house, and are just shy of the down payment. I'd buy the car after the house deal is closed, or else it could impact your ability to qualify if you are close to the edge of the debt percentages.

I've finally come to the conclusion that three to four year old "cherry" one owner cars are about the best thing going. I then look at the total cost of ownership on a 10 year time horizon. It seems to be a little better than the new car cost of ownership, unless you hold a new car over 10 years. It starts to make sense on the new car faster, if you pickup a "new" last year's model, and hold it forever. If you plan on trading in about 3 years you might get burned a little because of it being technically a year older for book value purposes.

The book "Drive it forever" makes a good case for never getting rid of a car, except for major rust/frame damage. I'm not sure I could go that far, since older luxury cars (my preferrence) seem to get inordinantly expensive as they hit the 15 year mark (my opinion at least.)

Good luck.

greg_atlanta wrote:need cash for future house/condo purchase

Oh yeah!!! House/Condo Purchase Good!!!

Just make sure you can work your cash harder than the interest rate you'll be paying for the extra on the loan and you're doing more than 95% of the people... it amazes me how many people put away tons of cash for a 7 or 8% down payment on a house (at the same rate as a 3% down payment loan) while paying 19.9% on a credit card or two.

Teach everyone that concept and the theory of "time value of money" and there'd be a lot of out of work lenders!

Heath

Have a 97 Voyager. Had to get it because have alot of kids. Credit OK. Couldn't get low int loan. No down payment. Financed all for 5.5 years.

If the car was totaled I would have owed alot more than they would have given. Main transport so we would have been out alot. Tried to trade but owed alot more than worth even if I sold outright.

If I could afford it I would get the insurance but check pricing from your auto insurance too. May be cheaper.

Buy a car that is 1 to two years old to avoid big depreciation. Finaced cheap and you will always be fine

By the way, you can either pay the depreciation in the form of a down payment of in the form of a debt when you sell it. I do not plan on ever buying a new car again.

Good luck

I think many lease contracts include GAP insurance already. All of mine have. If they try and get you to pay extra, I would be leery of the lease agreement.

My personal auto insurance policy also includes lease gap coverage, so if I were to pay extra for it I would be wasting my money.

For a purchase, why not simply insure your car at an agreed value that covers your exposure in its entirety? This provision will typically cost less than the $120-$180 per year mentioned in the first note of this thread.

Check your insurance policies...you may be surprised with what you have..or do not have! In the alternative, call your insracne agent.

Standard rule of thumb. If you buy a new car or have a significant car payment, you will not buy a house. The money you pay each month on the car plus insurance and operating costs are deducted from the money you have available each month to buy the house.

A $500 a month car plus expense cost will knock $40K to $60K off the value of house you will qualify for. Same thing applies to your credit card bills, personal loans, student loans, and such.

In many cases (all depending on the lender) they consider your credit cards as if they were charged to the max. Often, they require you to get rid of the cards completely!!

Get the house, then get the big car payment.

juiceman wrote:I do not plan on ever buying a new car again.

But I think we all deserve to buy a new car at least ONCE !!

Is there a cure for the "new car bug" ??

reggiegsd wrote:A $500 a month car plus expense cost will knock $40K to $60K off the value of house you will qualify for. Same thing applies to your credit card bills, personal loans, student loans, and such.

In many cases (all depending on the lender) they consider your credit cards as if they were charged to the max. Often, they require you to get rid of the cards completely!!

Get the house, then get the big car payment.

Thanks, good info. I guess going through the mortgage process is an education, and lenders are probably less generous now than they were 2-3 years ago.

(Seems like every young couple in Atlanta recently qualified for a $150K house & two $40K SUVs on $60K a year of combined income.... guess that pattern is ending ).

I've never ever paid a bill late (really!) but I'm sure my credit card usage would raise a few eyebrows (no thanks to the old Q... HA!!!). (Hey, at least I got a bunch of FF miles fixing her).

Originally posted by greg_atlanta "]But I think we all deserve to buy a new car at least ONCE !!

Is there a cure for the "new car bug" ?? [/QUOTE]

Is there a cure? Sure! In addition to the payments, think what happens when you're driving a brand new $35,000 G35, and someone creams it at a light -- but only $15,000 worth.

Sure, the insurance company fixes it, but you and I know it will NEVER be right. So, you end up stuck with an expensive car that's had $15,000 in crash damage, and it's just not right. Trade again? Lose even more to profit margins and depreciation? Live with it?

My '92 Q45 is worth so little that any little fender bender probably means I'll get a check from the insurance company. I would rather have it that way -- I've had to dice with thieving no-good-no-account body shops and hardball insurance companies before, just trying to get my car back to the way it was. I would prefer to take my check and walk away.

I've never bought a new car, probably never will. I'm keeping the Q until a single repair is more expensive than the car's value. Since I do most of my own maintenance, that ought to be a while.

A third path is to buy interesting older cars that are -- brace yourself -- appreciating! I've had some of the most interesting cars and *made* money on almost everything I've driven in the last 10 years. Lots of Cadillacs, a Rolls-Royce, a 911 to name a few . . . all better than free 'cause I made money on them. If you like older cars, *that's* really fun.

Another thought is to reevaluate. Live closer to work and shopping. You can make it so that you don't have to drive 500 miles a week to survive. No one has to be dependent on a car, even in a suburb-y setting like I live in. I drive about 100 miles a week, but only because I want to. Easy for me to say? Well, I put my money where my mouth is -- I actually picked my house to be within (arguable) walking distance of work and shopping. My cars are a luxury to me. If it doesn't start, I'll be 15 minutes later to work.

Okay. Enough serious talk. It's Friday!

Todd,

Right on about the walk to work thing! I bought my place about 6 blocks from my job, after doing a 60 mile a day round trip commute in heavy traffic for a few years.

Talk about a quality of life enhancer! I keep the Q around so my wife has something to drive during the week, and we can use it for dates on weekends. I also keep a junker Ford Van that I can leave at the airport, or haul bicyles or fishing gear in. Total miles on both vehicles is under 5,000 per year, vs about 30,000 per year in our old suburban location.

We had to downsize the house by about a third, but it was one of the best moves I'm made.

Its a lot more fun to drive when you want to, not when you have to.

DDWQ45T wrote:Its a lot more fun to drive when you want to, not when you have to.

Thanks. I was afraid I would get bannished from the group. Heretical thought and all that.

I really like thinking of the Q as a luxury (or that over-used "toy" expression), rather than as an appliance. I used to live 15 miles north of work and shopping. That sapped about 90 minutes a day out of my life. 90 minutes a day is something I can't afford! Back then, once I made it home, nothing could persuade me to head *back* into town for anything. Terrible for my social life!

I'll never to do that again. Yuck. Besides, walking is vastly underrated exercise. When I walk regularly, I can eat anything and everything I want and never gain an ounce. I'm waiting now for the summer heat to break so I can comfortably go back to it.

It takes me 15 minutes to drive now. Mostly because I don't have to find parking when I walk, walking takes only an adittional 10 minutes. Gives me much-needed "think & decompress" time.