After hours of negotiations at the car dealership and finally being so exhausted from looking at numbers, you feel you are getting to the end of the sales process. Your first salesperson congratulates you on your new car and tells you that all you have to do now is sign some paperwork.

Well... it's not over yet. Most times you get sent into another office and are greeted by a really nice person. That smile is a cover up for all the upselling they are about to do. And one of the sales pitches they will give you is "Do You Want To Add Gap Insurance" ?

Should You Buy Gap Insurance From The Dealer?

The quick answer is NO. Many times, you may want to purchase Gap Insurance, but buying it from the dealer is going to end up costing you a lot more. It's a lot cheaper to buy gap insurance from your auto insurance company or even from a credit union that offers it. Doing it this way can save you hundreds of dollars.

What Is Gap Insurance

So here's the pitch you'll get at the dealer. Which does explain what Gap Insurance is. They tell you that your city has an enormous amount of accidents. In fact, they may throw in their own personal experience saying they drove into work the other day and saw a car that was totaled.

They may even say that one of the most important things you can purchase for your new car is Gap Insurance. And why is that?

If your car does get completely ruined in an accident, your insurance company will typically reimburse for the price of your vehicle. But they won't reimburse how much you actually owe on your vehicle. So that amount in between is the "GAP." And Gap insurance will cover that dollar amount.

Here's an example. You bought a car for $30,000. And you financed that entire amount. You then drive off the lot and head home. As you head home you get in a bad accident and your car is destroyed. You insurance company is going to pay what your car your is worth at the time of the accident. And as you know, your car completely drops in price once you are off the lot.

So if the insurance company says your car is worth $27,000, but you owe $30,000 since the car is financed, there is a $3,000 difference. Gap Insurance would cover this amount.

Why Do You NOT Need Gap Insurance?

Everything in life is risky. But if you ended up putting down a large down payment on your car, then you may not have a GAP in case of an accident.

Or if you have been driving a few years and your car is worth more than your loan, then you also may not have a GAP in case of an accident.

Typically, Gap insurance is good for the first couple of years of your loan, and especially on very expensive or luxury cars. However, if you do end up buying GAP insurance, save yourself some extra money and don't buy it from the dealer.