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Smart Shopper Gap Insurance
446 messages, Last post on Dec 05, 2009 at 7:59 AM
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I was just about to sign a new 06-530i lease for 36 mos. I got a good deal. I wanted to keep the monthly payment as low as possible. My company allocated $7500 to me to use as upfront cost and I used my trade-in $5000 allowance (Dealer buys car and gives me a check) to get to a total of $12,500 down payment. I was almost ready to sign the deal when I got a call from my finance buddy who called me an idiot for putting ANY money down other than min requirred. (Sec, acq, fees) Don't ask why I wanted to put the $7500 company allownce down, it was by itself a sound decision based on tax benefits. HOWEVER, here is the question. If the car gets totaled or stolen and there is a complete loss, won't I lose all the money I put down? My insurance and the Gap insurance in the Acq fee take care of the leasing company but I get screwed unless the loss happens in the last month. Am I missing something? If the loss happens a few months into the lease, what is available to protect my $12,500 down payment? I realize putting the whole 12,500 is a monthly benefit to me inthe amount of $347 as far as lowering my monthly payment. So if the loss happens in month 2, I loss the 12,500 less (2 X 347). Won't the leasing company make out on a total loss under these parameters? |
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While I agree I would not put anything down on a lease. If its insured and has gap even, why would one "loose " . I don't see the difference in a purchase and lease insurance. I called my agent to ask and the only difference is some leases require more coverage then some have, example.100k /200k/100k. DL |
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Well, if your company gives you $7500 for upfront costs, and you have to use it or lose it, then I would certainly put that money down... However, I surely wouldn't put any of my own money in the deal. Your assessment is correct.. Lease downpayments are basically forfeited, if the car is totaled or stolen during the lease.. The GAP insurance makes sure that the owner of the car (the bank) is paid off, but usually does nothing for you.. In the case of a very large downpayment, the ACV of the car may be more than the payoff, and there may be some money that comes back to you... but, in that case, the GAP insurance isn't an issue, and you are still likely to lose a large chunk of cash... The bank will be covered under a total loss, but won't likely ever come out ahead. regards, kyfdx |
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Example: A brand new '06 530i with an MSRP of $50K... Let's say our hypothetical buyer is a bad negotiator, and only gets $1000 off MSRP.. Once he rolls in the acq.fee and some other garbage, his gross cap cost is $50K, and the residual is $30K. Instead of putting nothing down and having a payment of $755, our buyer makes a $5K cap cost reduction, resulting in a net cap cost of $45K.. thus lowering his payment to $605. Three months later, his "used" '06 530i is stolen... The lease balance is $43,250.. The insurance company says the actual cash value of a used '06 530i is $43K (pick any number here). The GAP insurance kicks in the extra $250 to payoff the lease company, and the lessee has spent a grand total of $6815 to lease a car for 3 months... If he had made no cap cost reduction, the payoff would have been about $48,300.. the GAP insurance would have kicked in the $5300 difference to the bank, and his total to lease the car for 3 months would have just been the 3 payments of $755, or $2265.. His loss attributable to making the cap cost reduction would be $4550... regards, kyfdx |
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Your numbers can't be right. Try using a larger down payment. The bank has to make out if they don't return some money to the leasee. When you put 12.5K down, the bank has that much LESS at risk. However, the car is still valued the same. The insurance company of the leasee would cover what it would cost to replace the car new less a depreciation factor. This has to be an amount that would exceed what the bank put up and had at risk. Also, if no money was placed down, the insurance company would do the same deal and because of depreciation, the bank may lose. That is when the gap insurance would make up the difference. There has to be something that exist to protect the leasee who puts down a large downpayment. PP 49000 Down 12,000 Tot Cap 37000 (this is what bank/finance company gives to car dealer) 36 months 450/month COMPLETE LOSS month 3 Leasee would have paid approx 13,350 (12,000 + 1350 ) Leasee insurance company replaces car for 49000 les 3 month depriciation of about 4000. Bank/Lease company get check from leasee insur company for 45000. The insurance company would have to cover atleast this amount. The bank only had a total of 37000 in the car. Any loss of lease payments would be made up by the gap insur. Therefore, the bank ends up with 8000 more than what they put up. Should'nt the bank send the 8000 back to the leasee? Or, can/should the leasee sue the bank for this amount? |
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Exactally, why would said bank keep my 8k ? Or better yet when I recieve my insurance check, that has to be endorsed by the finance company after the payoff,I should get the remaining amount. DL
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One quick reply.. as I'm not likely to follow the GAP insurance thread.. True, if the ACV of the car exceeds the payoff, then the lessee may receive the overage... But, the lessee doesn't own the car, and has no financial interest in it.. The bank only cares about getting the payoff.. So, no incentive for the bank to wring the best possible settlement out of the insurance company.. There is nothing in the lease paperwork that says you are entitled to any of your downpayment back.. Plus, in this scenario, GAP insurance doesn't enter the picture.. GAP insurance only covers a shortfall in the payoff to the lease company.. No shortfall, no claim on the GAP insurance.. Using a $12K downpayment in my example above? If the ACV of the car is $43K, and the payoff is $37K, then you'll still have spent the same $6800 to lease the car for three months.. Even if they return the $6K difference to you (which is not a given), you are still out the same amount.. It is analogous to trading your car in after only owning it three months.. How much do you think you'll lose? By not making a cap cost reduction, you don't have to worry about it... GAP insurance will make up any shortfall. regards, kyfdx |
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Replying to: dl7265 (Apr 19, 2005 9:14 pm) |
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Hi scotlow. I always advise consumers against making any sort of down payment when leasing. I do so for two main reasons. The first is if your vehicle is totaled in an accident or stolen during your lease, your insurance company pays off the bank that you were leasing it through and your down payment essentially disappears. The second main reason is that down payments on leased vehicles do nothing to reduce their lease-end purchase prices. So your lease-end purchase option price for the BMW that you are leasing would be exactly the same, regardless of whether you had put $12,500 down, or had made absolutely no down payment at all. Car_man Host Smart Shopper Forum
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