When you buy a new car from a motor dealer it will often involve taking out a form of finance agreement to do so. Many of these are arranged through the motor dealer themselves, allowing for low and affordable monthly repayments for the vehicle purchase. Then comes the issue of additional products, such as paint protection, and of, course Gap Insurance.

Now it can be a simple decision to put Gap Insurance into the amount of finance you are taking, as it may only be ‘another £10 a month’ but it really is not as simple as that. There are two compelling reasons why you should not put the cost of the Gap Insurance into the a finance agreement where interest is charged.

1 – You end up paying far more for your Gap cover. If the policy is say £400 at the motor dealer, and you take the finance agreement over 5 years at 5% flat rate interest per annum, then you will end up paying back an extra £100 for the Gap Insurance. This is because you will actually pay an extra 25% interest over the full 5 years for that extra £400 you borrowed.

This can make an already over inflated motor dealer product even more expensive!

gap insurance in finance agreements

Adding your Gap Insurance to your finance agreement could be a very costly excercise

2 – You could be paying for your Gap when it is no longer valid. If the motor dealer offers you their standard ‘one size fits all’ 3 year Return to Invoice policy, which you then put on a 5 year finance agreement then you will be paying for the Gap in years 4 and 5 when you cannot even make a claim on it!

The best bet is to pay for your Gap Insurance policy up front, or even better still find a much more palatable online suppliers price, and you could even cover the full five years for less than £200. Some even offer you the option to pay monthly too, so well worth looking into.

Whatever you do, try to avoid putting the cost of your Gap Insurance into your motor finance agreement.