loan balance

Borrowing to buy a car is common and, in fact, many people take car loans they will be repaying over many years.

It’s not necessarily a big problem to take on auto debt because the interest rates are usually relatively affordable and those who can’t afford to pay cash for a car may still need a vehicle to get to work.

But, those who do have auto loans will always want to make sure they have a specific type of auto insurance coverage.

This insurance coverage is crucial for borrowers with auto loans

Any driver who has an auto loan needs to make sure that gap insurance is purchased along with their other car insurance coverage.

Gap insurance provides a very specific type of protection. If a driver with gap insurance is involved in a car accident or their car is stolen or otherwise destroyed, it ensures they are not forced to pay out of pocket for a car they no longer have.

Here’s why that could be a concern. When a motorist gets into a covered collision, the insurer will either provide money to repair the vehicle or will declare it a total loss if it is too damaged to repair or if repairs would cost more than the car is worth. If the car is declared to be a total loss or if it is stolen and not recovered, the insurer will estimate what the vehicle is currently worth and will pay out the fair market value.

The problem is, the fair market value might not be enough to pay off the outstanding car loan balance. Cars can depreciate, or lose value, very fast in most cases. This is especially true with newer cars that see a rapid decline in price as