A few weeks ago, I told the story of how I hit a deer and totaled my car in 2008. I know the above pic is horrible, but it’s basically my car lying on its top in a ditch. What I didn’t talk about in that post was the impact of the wreck on my finances.
I bought the HHR used in 2006, right in the middle of our bankruptcy. I know, that sounds ridiculous, doesn’t it? But I got a job exactly a week after our court date (my luck), and since we gave up one of our cars in the bankruptcy, I had no way to get to work. So my lawyer told me I was welcome to buy a car if I could find someone willing to provide financing.
The dealership where I bought the HHR was happy to provide financing - at 18% interest. Which should be against the law but isn’t. I paid $16,000 for the car, scheduling 6 years of $400 payments. If I hadn’t totaled it, I would have made 72 payments totaling nearly $29,000. STUPID!
The Aftermath of the Wreck
At the time of my wreck, the car was worth $9500 and I still owed around $12,000. Progressive gave me the full value of the car, which was sent to the finance company, leaving me with a $2500 balance. I was so upset!
I actually continued making my car payments for 2 months while driving my dad’s truck to work. But when I bought another car, there was no way I could afford to pay both. So I called the finance company, explained the situation, and asked to refinance the $2000 or so I had left. “Sorry,” the girl told me. “We don’t do refinancing. You’ll have to get a loan elsewhere to pay this off.”
Um, excuse me? My bankruptcy just discharged and you think someone is going to give me a loan with no collateral? I was only able to finance my replacement car by the skin of my teeth!
I was completely willing to pay the remainder of my loan, but not on the current terms. Yet the finance company would accept nothing but the full $400 payment each month. So I did what any broke person would do - I stopped paying them and stopped answering their calls. (Yes, we were broke even after bankruptcy.)
Fast Forward
Here I am, 3 years later, with a charge-off on my credit report. The ONLY negative on my report other than the bankruptcy itself. I pray that my current car lasts forever because I doubt I could finance another one - a charge-off from a car loan pretty much kills any chance of that.
As soon as I insured my current car, I asked Progressive about gap insurance. Gap insurance will pay off your vehicle when you owe more than it’s worth (with restrictions). My coverage will pay 25% more than the value of the car. So if I wreck it tomorrow and it’s worth $10,000, my policy will pay up to $12,500. (Luckily I owe less than the car is worth, so I don’t have to worry about it. Yet I keep the coverage in case my car suddenly plummets in value.)
Some people will say that gap insurance is a waste of money. If you put a large enough down payment on a car, you’ll always owe less than it’s worth. You shouldn’t finance a car. You should only finance for 2 years. Blah blah blah. That’s great, but it’s not realistic for most people. And it’s not realistic for me, even right now.
The Bottom Line
I can’t afford to pay for two cars. If I wreck mine, I’ll have to finance another one. And I can’t pay another car payment on top of the one I’ve got now. I also can’t afford another negative entry on my credit report. So I pay the $60 a year or so to know that my car loan will be paid in full if I have another accident.
No one wakes up in the morning thinking, Oh, I’m going to have a wreck later today! We always hope it won’t happen to us, but you need to be prepared in case it does. If you financed all (or a large part) of your vehicle, chances are you owe more than it’s worth. What will you do if a stupid deer runs out in front of you, like in my situation?
For me, gap insurance is a miracle product. It’s worth the tiny added cost on my car insurance bill. Everyone won’t need that kind of coverage, but if you do, I urge you to talk to your insurance company.
