Estimates of Depreciation? (Considering gap insurance)

Discussion in 'Prius c Main Forum' started by Ashley7, Apr 9, 2012.

  1. Ashley7

    Ashley7 Active Member

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    Hello again folks,

    I thought I avoided the need for gap insurance by putting down about 27% when I bought the car, but I got a letter from my credit union that suggested I get gap insurance. They suggest it on any loan with 75% loan to value (or maybe it was 70? Don't remember.) This is the first time I purchased a new car, so I've never had to consider gap insurance before.

    So my question is, are there any ideas, perhaps based on old liftbacks, as to what the immediate, off-the-lot depreciation might be for the c? Did it depreciate by 30% the moment I bought it? I know Prii are supposed to have low depreciation rates in the long-run, but within the first few months to a year?

    If I'm just a tiny bit upside-down, I probably won't bother with gap insurance. But if I would owe a few grand in the case of a total loss, then I might. I bought a Two, and I owe approx $15,600.

    :confused:
     
  2. Teacake

    Teacake OohShiny

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    Ooh, interesting question. I'm interested in knowing this too as a young car buyer. My parents, if I may say, are pretty smart cookies and advised me when I got my car in '09. But none of us heard about or mentioned gap insurance that I recall.
     
  3. cpfans4

    cpfans4 Junior Member

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    I have loan payoff on my auto insurance costs me 3 or 4 dollars a month. Good investment and alot cheaper than gap insurance. See if your insurance company offers this as gap insurance is way over priced.
     
  4. hmcgregor

    hmcgregor New Member

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    GAP insurance comes down to what kind of hit are you personally willing to take.

    Putting down 27% means that if your car is totaled today, and the GAP insurance is of any use, you will have already personally lost that entire 27%.

    Are you willing to risk a few more thousand in addition to the 27%, the there is no need for GAP insurance. In most cases as far as I am aware GAP insurance only applies to the diff between the loan and the current fair market value (and possibly deductible) and does not cover the amount you put down as a down payment.

    Now if you had put down 5-10%, I would probably go for GAP insurance.
     
  5. HaveNoCents

    HaveNoCents Conservative Tree Hugger

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    You wouldn't need gap insurance unless you financed it for a long time. Down payment percentages are meaningless without knowing the length of the loan.
     
  6. Ashley7

    Ashley7 Active Member

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    Sorry, forgot that bit. It's, uh, a long one. 72 months. I know, I know! I plan to pay it off quicker, though, just liked the security/flexibility of the lower payments. But it will certainly be more than just a couple years.
     
  7. Valborg

    Valborg Member

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    I'm buying a Pc4. I went with the longest length with the lowest interest rate I could get, which for me was 60 months. I plan to put down 20%. My loan specialist said that I was putting a good amount down on the car but I might want to have gap insurance, at least in the beginning. She said I could call and drop it at anytime. I plan to have gap insurance until I can figure out how fast the C is depreciating. But if the C is anything like my Honda Fit then I don't think I'll keeping gap insurance long.
     
  8. SageBrush

    SageBrush Senior Member

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    Gap insurance covers the difference between the car's market value and loan principal.

    For OP it is less than zero, and will remain so for the life of the car unless unrepaired damage to the car drops the market value.
     
  9. ETC(SS)

    ETC(SS) The OTHER One Percenter.....

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    I'm struggling to try and figure out why you can put 27-percent down on a car and still be upside down after you drive off of the lot....????
    Yeah...maybe a different car, but probably not the "C".
    Gas is up and the used car market is pretty hot right now.

    It's your call, but I'm thinking that if you go to KBB dot com and do a little pencil work, you're about scratch right now. As stated above, if you wreck the car then you're going to be out your down money, but I'm willing to bet that unless you have a high deductable (mine is 1,000) you're probably going to be OK.

    The credit union "offered" you GAP because they make a commission on selling.....GAP insurance. If they "required" GAP, then you'd be in a little bit different situation, and I'd say (too late in this case!) that you should not have purchased the car to begin with!
    Talk it over with your insurance agent if you're not sure.
    Oh.....and the 72-month loan isn't quite as stupid with money going for 1.99 percent. Put a little extra money towards each payment, and the car will appreciate more rapidly----or it won't depreciate as rapidly, depending on your situation.
    You'll be suprised how even an additional $25 a month will bring down the balance over time.....especially with the gas that you'll be saving.

    Good Luck!
     
  10. SageBrush

    SageBrush Senior Member

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    Why ?

    I doubt she will lose more than about $2k plus her deductible and TTL if she totals the car tomorrow. If that, since there are no used Prius 'c' on the lots currently to provide a 'market value,' so the insurance company would I think have to put up the cash for a new car to make her whole again (minus the deductible and TTL.)

    In any case, I think we agree that a down payment of 27% makes gap insurance a complete waste of money.
     
  11. HaveNoCents

    HaveNoCents Conservative Tree Hugger

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    If they approved the loan without gap insurance then there is no reason why it should be needed.


    I know there are mostly very young people on this board so I'm going to be an old fart and say to all that If you cannot afford to pay a car off in 4 years then you really can't afford the car. People would be so much better off to have their vehicle paid off as quickly as possible so that those payments can be invested into something that appreciates instead of depreciates. It is very difficult to accumulate wealth when you always have a car payment.
     
  12. SageBrush

    SageBrush Senior Member

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    Why did you pick 4 years ?

    I know I did not even consider buying a new car until I was able to pay for it with cash. I'm not sure why, to be honest. I suspect I viewed a new car as a luxury I could not afford. Oh, and I hated car payments. I think in total I have spent 9 months repaying loans on cars.
     
  13. HaveNoCents

    HaveNoCents Conservative Tree Hugger

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    With a typical down payment your car's insurance value is what you owe on the car at any given time during the first 4 years. Any time period longer than 4 years and you are guaranteed to be upside down, and in the need of gap insurance.

    It's really simple. If you need gap insurance you can't afford the car. The people loaning you the money know you can't afford it, and they want protection just in case you wreck the car.
     
  14. SageBrush

    SageBrush Senior Member

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    I'm not following

    Here is wikipedia
     
  15. HaveNoCents

    HaveNoCents Conservative Tree Hugger

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    I'm not following what you are not following. The difference between what you owe on a car, and what it is worth at any given time is what is being insured. If you owe more than what the car is worth then you need gap insurance.
    When you finance a car for 4 years you are never in need of gap insurance because the car will be worth approximately what the insurance company will pay if the car were totaled. If you finance for 3 years you will get a check for more than you owe so you will have a down payment for the next car.

    If you finance a car for anything longer than 4 years you will be upside down at some point during the loan period. The people that loan you the money may not like that so they ask, or force you to get gap insurance. It covers their nice person if you total the car in an accident.

    Therefore if you need gap insurance then that means the finance company does not feel like the asset is protected. If they don't feel good about it, and you cannot come up with the down payment that will make them feel secure, then obviously the person buying the car really can't afford the car because he cannot personally make up the difference or GAP.
     
  16. SageBrush

    SageBrush Senior Member

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    I wrote a long post and lost it to the ether, so I'll just say your rule of thumb presupposes a certain down payment, and car depreciation schedule. If her down payment covers the first year of depreciation, she would be unlucky to ever be underwater, even with the 6 year loans now being offered.

    This is the amortization table in graph form:

    [​IMG]
     

    Attached Files:

  17. HaveNoCents

    HaveNoCents Conservative Tree Hugger

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    I basically agree with your statement, but it's a twofold problem. The down payment needs to be 1 year of depreciation, and the principle reduction per year must be 1 year of depreciation or she will be underwater before the loan is paid.
     
  18. Ashley7

    Ashley7 Active Member

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    Thank you for all the responses. Yes, what I'm trying to figure out is whether my 27% down payment likely covered the initial depreciation. I guess it's hard to say, though, since the car has hardly been on the market.

    I do understand that the long-term loan puts me at risk if the car depreciates faster than I pay it off. But if I pay it off faster than required, as I plan to do, that shouldn't be too much of an issue.
     
  19. Kirkuleez

    Kirkuleez New Member

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    That's a pretty nice down payment and the c should hold it's value well so i think you'll be just fine without it. I've bought 8 new cars and never had gap insurance and usually with a minimal down payment. When buying Toyota or Honda, the'll almost always hold their value well. I just traded my 2010 Honda Fit which i put no money down and made the minimum payments for two years. I wound up with $3000 in positive equity.
     
  20. outhouse

    outhouse Member

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    Ashley they just want to sell you

    its their job to make money from your fear. Its a standard form.



    In this case your fine.
     
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