Gap insurance on new lease e.g. mazda

sugob

I can understand the requirement for gap insurance on car purchase but on a lease it would seem similar but a bit more obscure

1) So you take a lease on $40k car [put no money down], drive off lot & in an accident which writes car off [deffo counts as a bad day!]
Insurance said car market value is $36k [even thou you had it only for an hour, but such is life] - so the 'gap' you owe the lease company is $4k [plus any insurance deductible]. If you had gap insurance it would cover this $4k, if not then you'd be out by this $4k

2) Same car and write off but you had put $10k down on lease - does the insurance company pay up only $30k [$40 -10k] rather than $36k so, apart from insurance deductible, you are covered for the lease company...but are now $10k out of pocket for the money you put down. The insurance company has saved paying out the extra $6k [it's hard to feel happy for an insurance company!]

Are these slightly contrived [e.g. ignores other fees/taxes] examples correct? Bigger down payments negate need for 'gap' insurance but putting down a larger down payment has resulted in you being shafted big time!

TIA
M

kyfdx

sugob said:

Hi Michaell/kyfdx
Thanks for your thoughts - so minimum down is probably 'better' [so you don't lose any upfront]
Even if you had the money to do a $4k upfront [i.e. the initial depreciation in my example], better off just leaving it in the bank (and getting ~0.01% interest, wa-hey!), only using it if the worst happens
If you prefer to cover the potential gap with gap insurance (so would definitely then want to put min upfront on lease!), then doesn't the gap tend to get smaller over the duration of lease & gap insurance value diminish (can you cancel after, say, 75% through lease)?
Seems some insurance companies don't do gap [ge...] or only available if you take as addon with other car insurance with them

Asking as Mazda dealer quoted ~$25/month for gap insurance when I asked which seems alot

TIA
M

When Mazda Credit was run by Chase, they included GAP insurance at no extra charge. Now that Toyota runs it, GAP is not included. TFS is one of the few finance companies that does not include GAP.

If you have GAP, the incentive is to put as little upfront as possible, to take advantage of the "free" insurance.
If you don't have GAP, your liability remains the same, no matter what you put upfront.

The GAP does not necessarily diminish over the term of the lease. Also, it isn't paid monthly, the entire premium is paid upfront, so there is no refund by canceling it during the term.

GAP insurance that is marketed by TFS dealers is subject to big markups. The last time a Toyota dealer offered me GAP, it started out above $700, and ended up at $225, when I kept declining it.

Michaell

sugob said:

I can understand the requirement for gap insurance on car purchase but on a lease it would seem similar but a bit more obscure

1) So you take a lease on $40k car [put no money down], drive off lot & in an accident which writes car off [deffo counts as a bad day!]
Insurance said car market value is $36k [even thou you had it only for an hour, but such is life] - so the 'gap' you owe the lease company is $4k [plus any insurance deductible]. If you had gap insurance it would cover this $4k, if not then you'd be out by this $4k

2) Same car and write off but you had put $10k down on lease - does the insurance company pay up only $30k [$40 -10k] rather than $36k so, apart from insurance deductible, you are covered for the lease company...but are now $10k out of pocket for the money you put down. The insurance company has saved paying out the extra $6k [it's hard to feel happy for an insurance company!]

Are these slightly contrived [e.g. ignores other fees/taxes] examples correct? Bigger down payments negate need for 'gap' insurance but putting down a larger down payment has resulted in you being shafted big time!

TIA
M

#2 is the correct situation, which is why we always recommend no down payment, of any size, when you lease.

kyfdx

Michaell said:

sugob said:

I can understand the requirement for gap insurance on car purchase but on a lease it would seem similar but a bit more obscure

1) So you take a lease on $40k car [put no money down], drive off lot & in an accident which writes car off [deffo counts as a bad day!]
Insurance said car market value is $36k [even thou you had it only for an hour, but such is life] - so the 'gap' you owe the lease company is $4k [plus any insurance deductible]. If you had gap insurance it would cover this $4k, if not then you'd be out by this $4k

2) Same car and write off but you had put $10k down on lease - does the insurance company pay up only $30k [$40 -10k] rather than $36k so, apart from insurance deductible, you are covered for the lease company...but are now $10k out of pocket for the money you put down. The insurance company has saved paying out the extra $6k [it's hard to feel happy for an insurance company!]

Are these slightly contrived [e.g. ignores other fees/taxes] examples correct? Bigger down payments negate need for 'gap' insurance but putting down a larger down payment has resulted in you being shafted big time!

TIA
M

#2 is the correct situation, which is why we always recommend no down payment, of any size, when you lease.

No, I think #1 is correct.

But, if you don’t have GAP insurance, you are on the hook for the $4K, even if you put ZERO upfront. With GAP, you put as little as possible upfront, because then you lose nothing.

Michaell

kyfdx said:

Michaell said:

sugob said:

I can understand the requirement for gap insurance on car purchase but on a lease it would seem similar but a bit more obscure

1) So you take a lease on $40k car [put no money down], drive off lot & in an accident which writes car off [deffo counts as a bad day!]
Insurance said car market value is $36k [even thou you had it only for an hour, but such is life] - so the 'gap' you owe the lease company is $4k [plus any insurance deductible]. If you had gap insurance it would cover this $4k, if not then you'd be out by this $4k

2) Same car and write off but you had put $10k down on lease - does the insurance company pay up only $30k [$40 -10k] rather than $36k so, apart from insurance deductible, you are covered for the lease company...but are now $10k out of pocket for the money you put down. The insurance company has saved paying out the extra $6k [it's hard to feel happy for an insurance company!]

Are these slightly contrived [e.g. ignores other fees/taxes] examples correct? Bigger down payments negate need for 'gap' insurance but putting down a larger down payment has resulted in you being shafted big time!

TIA
M

#2 is the correct situation, which is why we always recommend no down payment, of any size, when you lease.

No, I think #1 is correct.

But, if you don’t have GAP insurance, you are on the hook for the $4K, even if you put ZERO upfront. With GAP, you put as little as possible upfront, because then you lose nothing.

Yep, that's right - now that I've reread the two scenarios, I agree with my co-host.

sugob

Hi Michaell/kyfdx
Thanks for your thoughts - so minimum down is probably 'better' [so you don't lose any upfront]
Even if you had the money to do a $4k upfront [i.e. the initial depreciation in my example], better off just leaving it in the bank (and getting ~0.01% interest, wa-hey!), only using it if the worst happens
If you prefer to cover the potential gap with gap insurance (so would definitely then want to put min upfront on lease!), then doesn't the gap tend to get smaller over the duration of lease & gap insurance value diminish (can you cancel after, say, 75% through lease)?
Seems some insurance companies don't do gap [ge...] or only available if you take as addon with other car insurance with them

Asking as Mazda dealer quoted ~$25/month for gap insurance when I asked which seems alot

TIA
M

sugob

Hi kyfdx

Thanks for the useful history of Mazda credit [which makes things clear] and your GAP example with Toyota
The Mazda dealer definitely told me [Jan 2021] that the GAP insurance was $25/month - maybe he had divided the total by the # of months of lease [but he didn't tell me that total was due at signing] but I said no quite quickly

Cheers
M