3 Costs You Should Not Include on Your Car Loan

Posted on: 29 November 2017

People who are buying insurance as part of the cost of purchasing new cars may often end up with a bigger car loan than necessary due to getting insurance add-ons that inflate the initial cost of the vehicle. Below are some of the insurance add-ons that you should think about carefully before getting financing for a car purchase.

Gap Cover

One added form of insurance that can increase the size of your car loan is "gap cover." This form of insurance refers to the additional compensation that is given to those whose cars have been written off after an accident or theft before the car loan is paid off. The car owner is often left with a shortfall of money to pay in case the compensation provided by the comprehensive insurance provider cannot cover the outstanding amount of the car loan. The gap cover is intended to provide that extra money that is needed to clear the difference between the loan balance and what has been paid out by the comprehensive insurance provider.

Loan Protection Insurance

Some insurance providers can also offer car buyers car-loan protection cover. This insurance is intended to cover your car payments in case you are unable to make those payments due to sickness, unemployment or injury. This insurance add-on may increase the total amount that you have to take a loan for when buying your car. Avoid this insurance cover unless you really need it. If you think it will be helpful, such as when there is a fear of possible layoffs at your workplace, it may be a good idea to delay taking the car loan. This is better than incurring the extra cost to shield yourself from your inability to make the loan payments once you are laid off.

Extended Warranty

You may also be tempted to negotiate for a bigger car loan to buy an extended warranty or mechanical defect cover for your new car. This insurance is intended to cover any faults that may occur to the major car systems, such as the transmission system and the engine. However, new cars are covered by the manufacturer's warranty. It may therefore not be necessary for you to buy this extended warranty from the insurer.

You should research the true value of any extra insurance coverage that you are advised to buy. Get independent advice from an expert so that you can avoid any extra costs that you do not need. In this way, your car loan payments will remain within a manageable range. For more information, contact a car loan expert.