Whenever you are looking at getting a new car, one questions is whether to lease or to own. There are a lot pr pros and cons on both sides of that argument. A point you should consider if you cannot buy the car outright is the cost of those finance payments if something happens to the car.
In order to able to drive you have to purchase at least the state minimum for bodily injury and property damage. The state makes liability insurance mandatory. This covers someone else in an accident with you for medical or property repair if you were at fault. In addition to that, when you finance through a bank or dealer or a leasing company, the bank or dealer or a leasing company requires you to pick up certain non-mandatory insurance coverage. They generally make comprehensive and collision insurance a provision you agree to purchase in order for you to qualify for the financing. This covers their investment, the car.
However, cars depreciate quickly, especially in the first few years. The greatest drop in value is the moment you drive off the lot. Depending on the model and make of the auto, it can lose as much as 8% of its MSRP within the first week of you driving it around. Then it will depreciate even more, almost 15 to 20% more in the first year. Subtract that from the already deflated value from the first week, and you will take quite a hit if you have an accident in the first year, even the first couple of years of ownership. Your loan premiums or leasing payments are fixed and averaged for the life of the contract. In the beginning you have very little paid in principal to the loan, almost all is interest.
The way to compensate for that is to augment your regular car insurance with GAP insurance. GAP stands for Guaranteed Auto Protection. It fills in the gap between the value of the car and your outstanding loan or lease value. If you still owe $22,000 and the insurance company only puts the replacement value of the car at $18,700 after a catastrophic accident, GAP insurance pays off the difference and clears your outstanding balance. When you are asking about car insurance for a car you will be financing, ask for car insurance quotes on GAP insurance. It could help save you money for the first couple of years of the financing.