During a recent flight, Clark was talking with a seatmate who sold gap insurance for the automotive industry. The woman was talking about how people borrow so much on their cars, and how the great service she sells helps them if they’re upside down in their vehicle when it’s stolen or destroyed.
This woman had the solution to a problem that you shouldn’t let happen in the first place. You should not buy a car with no money down because of the rapid level of depreciation. The average auto loan is now 63 months long. So it’s very difficult to close the gap between your rapidly depreciating car and the value of the loan you’ve taken out.
The right way to buy a car is to save money first. Of course, it’s probably unrealistic to think that you can pay for a new car entirely in cash; only 1% of Americans are able to do so. By saving a down-payment of 20%, for example, you can have a shorter loan and pay less interest.
So you can eliminate the need for gap insurance if you do things right from the start.