Yes, it's still rare to see a million miles on an odometer, but it happens. And while in decades past automobiles were often junkyard-bound at 100,000 miles, today's cars can easily run 200,000 miles or more with minimal maintenance.
Automaker Saab announced recently that it would give a free car to any original U.S. Saab owner who drives the car 1 million miles or more. Spurring the challenge were Wisconsin insurance salesman Peter Gilbert and his 1989 Edwardian Gray Saab 900 SPG, whose odometer not long ago clicked over to six zeros.
His car, now in a museum, still has its original engine and turbocharger.
That's impressive, but he can't touch retired New York schoolteacher Irv Gordon, who's in Guinness World Records for having driven more than 2.5 million miles in his cherry-red 1966 Volvo P1800.
Though stories such as Gilbert's and Gordon's happen once in a blue moon, people who drive their cars for several hundred thousand miles today aren't so unusual. And they're not all devotees of Swedish iron.
Virtually every marque -- Chrysler, Honda, Chevrolet, even Miata -- has a not-so-underground community that's just as proud of the car at 500,000 miles as when it was new, maybe even more. (Mercedes and Volvo hand out grille badges and window stickers.) And their secrets range from the mundane to the downright mystic.
How long should a car last?
"Days past, 100,000 miles was usually the average life of a car," says John Ibbotson, a workshop supervisor who's in charge of vehicles that are tested for Consumer Reports' Auto Test Center in Connecticut, referring to vehicles from the 1950s to 1970s.
"At 100,000 miles, we were into major engine and transmission rebuilding," Ibbotson says. "Cars in the '90s, it was 140,000, 150,000 miles."
The U.S. Department of Transportation reports the average life span of a vehicle is 12 years, or about 128,500 miles. But that could be low simply because people don't maintain them, Ibbotson says. "If you bought a car today, there shouldn't be any problem with that car going 200,000 miles," he says.
Ibbotson's tips:
Read the book. "The biggest key is doing the maintenance that's in the owner's manual," he says. Simply stick to that schedule. But amazingly, he says, "very few people read the owner's manual."
Clean me. Don't let road salt build up on a car if you're in a state where you have to worry about that. It'll rust the car's body. Money isn't the answer. Not every service will prolong your car's life. "Some dealers offer fuel-injection cleaning (for example). It's not necessary," Ibbotson says.
Pray for luck. "There is some level of luck" whether you get a car that lasts forever, Ibbotson says. He recalls his father recently sold a 1995 truck with 200,000 miles, and it was in good shape even though he had done almost "absolutely nothing" to it. Meanwhile, a friend has a newer truck of the same model, same body style, with only 65,000 miles, "and that vehicle has had much more maintenance done."
A fascination with Festivas
Suzanne Mitchell and her tiny 1992 Ford Festiva L have had quite the love affair. "We bought it when we left (New York City) and moved to the suburbs," says Mitchell, who lives in Rockland County, N.Y. She started using the Festiva to commute to her job as a TV producer. The years, and the miles, rolled by.
Today the Festiva has about 250,000 miles -- not bad for a car that cost her $5,600 new.
So much does Mitchell love this car that when the odometer approached 200,000 miles she threw a "Fiesta for the Festiva," complete with margaritas, Mexican food and a piñata filled with toy cars. About 10 people jammed into the Festiva -- including a cameraman -- to watch the odometer turn over.
Why does Mitchell adore it so? It isn't because it's beautiful. In fact, it's runty, stripped-down and tinny. But others love the Festiva, too: "I could be driving in a Bentley Continental GT, and nobody would care where I got it," Mitchell says. Yet several times each year people leave notes on the Festiva asking if she wants to sell it. "Not only notes -- but people will signal me or give me the thumbs up," she says.
"It's just incredibly, highly efficient," Mitchell says, explaining that a fill-up costs only about $15 and that the car still gets in the "high 30s" for gas mileage. "It's perfect for the city" -- shorter than her family's Mini Cooper by 4 inches, she says, yet there's more interior room than the Mini.
What has she done to keep it going? "Nothing. We repair a little rust. And I swear I've only done oil changes. And we recently put a strut in. But anybody would have to do that for a car that old." The car has never been garaged, either. It helps that the car gets mostly highway miles, Mitchell adds.
Her advice:
Change that oil. "My husband completely disagrees with me, but I change the oil religiously every 3,000 miles; hey, it works for me." (Other experts say to stick to the oil-change regimen prescribed by the owner's manual, whatever that is.)
Think simple. An inexpensive car like the Festiva has almost no electronics -- and therefore less that can send it to the mechanic, says Mitchell. Unfortunately, they don't make them much like that anymore.
Sticking with his Saturn
Duane Delegan isn't shy about it: He's frugal. Superfrugal. Growing up, when the family was "really, really poor," the Chicago-area man even recalls lending his parents money from his piggy bank.
So when Delegan buys a car, he makes it last. In 1994, Delegan splurged and bought a new four-cylinder Saturn SC2 for $14,000. About 390,000 miles later, the Saturn is still rolling. What's his secret?
Delegan says he once read about a short-haul railroad company that saved huge amounts on maintenance by not pushing its trains beyond 80% of their limits because the top 20% of speed was where of the 80% of the wear and tear occurred.
He took the lesson to heart. He rarely if ever goes faster than 60 mph, instead settling in behind a slow-moving tractor-trailer on the highway. "If you slow down on the expressways, you get in less accidents, you get less speeding tickets. . . . You get better gas mileage," says Delegan, who now lives in a rural area near Chicago but has put both city and country miles on his car. "I just checked it the other day, and I still get 36 miles to the gallon."
The Saturn has required very little: an alternator, some tires. "I think I had to replace the rear wheel bearing once, but other than that it's been OK." Every other time he fuels up, however, Delegan now has to add a quart of oil. The fact that a car like the Saturn has a plastic exterior has saved it from much rust, he adds.
A vehicle will last a long time if you just avoid the temptation to buy another, says Delegan. Buy something you can live with, that has more classic styling and color, he advises. (Alas, he says his gold Saturn looks "kind of like a beached whale" and has teardrop mag wheels, but could look worse for a 12-year-old car.)
"Anytime you want to buy a new car, wait 60 days, then remember each day, you are not making payments, paying sales tax, higher insurance fees, new licensing fees and not worrying about dents," Delegan says.
"The cost of a new car is $20,000 to $30,000. The cost of a high-mileage car without payments? Priceless."
More do's and don'ts from Delegan:
Stick it. Buy a manual transmission vehicle; it will last longer. Keep it to yourself. Never let anyone else drive your car.
Keep it simple. "Always purchase the most basic version of the car model. You will stay out of the dealership service department and save tons of money and frustrations. Power windows or seats and digital gauges always break," says Delegan. Those extras don't add much if at all to the resale value after a few years, but they can add to the headaches, he says.
The obligatory Volvo
Volvos have a reputation for longevity, but Dennis Hatfield's wife wishes his boxy 1985 740 station wagon would give up the ghost.
Fat chance. The wagon, with 473,000 miles, is Hatfield's pride and joy, and he babies it.
The 58-year-old Sacramento notary and his wife bought the Swedish stalwart new. "I used to drive a lot. I was a mortgage broker at the time, and I would drive 50 miles to my job," Hatfield says.
He didn't get really interested in the car, however, until about the time his son rear-ended someone with the Volvo, doing $4,400 in damage. "The insurance company said the car was only worth $1,000, so I bought it back from them" and made it a "daily driver." Around 390,000 miles, he began to modify it.
And how. "I had a turbo engine transplanted in it -- it's probably got 60 more horsepower in it," Hatfield says. It's got bigger pistons. A special air-fuel management system. When the original computer chip couldn't deal with this, Hatfield put in some new electronics. He's even taken it to the track on special Volvo days.
Hatfield takes a different approach than the others. He's spent a lot of money on his ride. "Oh, my goodness, maybe $20,000 -- probably more like $30,000," says Hatfield. "This is my midlife crisis," he says of his major hobby.
"It's got loud exhaust on it, and it rides real rough because of the (racing) suspension, so my wife hates it, which makes me love it" more, he adds.
When asked if it's a stick shift, Hatfield replies: "It's gonna be, but it's not yet."
Hatfield's tip:
Find a good mechanic. Get a mechanic you really trust and who will come to know your car -- someone other than the dealer, who usually charges an arm and a leg and whose work doesn't always reflect that, Hatfield says.
Thursday, June 28, 2007
8 costly car features you don't need
Sure, individual climate control sounds neat, but adjusting the vents does the trick just as well -- and you save $800.
It had to happen: Somebody was bound to invent a car that can navigate better than a human. But the Lexus LS 460, which can parallel park on its own, is only for a select few: those willing to tack a few extra thousand onto a $60,000 to $70,000 car to compensate for their deficiencies behind the wheel.
But even among midprice cars these days, there's a dizzying menu of gizmos that can open and close the doors for you, create multiple environmental zones, keep your kids entertained (and silent) and even massage your back. By the time you've compiled your wish list, however, chances are you've added $5,000 or even $10,000 to the price of a car that seemed like a good deal when you were just looking at the list price.
Since I test-drive dozens of new cars each year, people often ask if this or that feature is worth paying for. The answer, of course, depends on your budget. Some options, such as flexible seating configurations or hidden storage nooks, provide lots of functionality for multitasking drivers and their families. But there are just as many features you'll never miss if you go without them, even though manufacturers and salespeople might tell you it's the latest must-have technology.
Not all of these features are offered a la carte. They're often bundled into packages, so you can't customize as specifically as you'd like. But if you eliminate a few unnecessary features, you may be able to bypass an entire $3,000 or $4,000 options package, or step down a whole trim line, and spend the money on better options or aftermarket products -- or just keep the cash in your savings. Some purists will argue with these choices, of course, and there are buyers who simply want the most loaded model they can get. But most car buyers can do without the following features and never know the difference:
1. Automatic stick shift This is also known by proprietary names such as Autostick, Tiptronic, Steptronic or Shiftronic. This allows you to shift gears without having to press a clutch, usually by pushing the gearshift up or down, or tapping paddles or buttons on the steering wheel.
Why you should skip it: Automatic shifting is meant to convey a sporty sensation to drivers who don't know how to drive a manual transmission or don't want to. But it's more of a nuisance than a thrill, unless you're driving a true sports machine, with Formula One-style paddles, like the Mercedes SLK or the BMW M5. On most other cars, people just end up leaving it in drive. Ho-hum.
Cost savings: $1,000 or more.
Instead: Shop for a car with a continuously variable transmission. This new technology increases engine speed without shifting from gear to gear. What drivers notice is a smoother ride and slightly better gas mileage.
2. All-wheel drive This sends power to all four wheels, instead of just the front or the rear axles.
Why you should skip it: If you live where there's sloppy weather and routinely drive in snow or mud, then, yeah, all-wheel drive is handy. But most people don't go out in snow anyway. And there are misperceptions about the safety benefits of all-wheel drive. It can help you get out of a snowbank, but it won't stop you from sliding on ice, or reduce braking distance. It also lowers gas mileage.
Cost savings: $1,500 or more.
Instead: Anti-lock brakes, stability control and side-impact and side-curtain air bags have proven safety value. Particularly on SUVs -- more prone to rollovers -- these safety options should be considered essential.
3. Compact-disc changer Audio systems that can handle multiple CDs are becoming standard -- just as CDs are going the way of vinyl.
Why you should skip it: With iPods and MP3 players becoming ubiquitous, there's no need anymore to junk up your car with stacks of CDs.
Cost savings: $500 or more.
Instead: A single CD player with AM/FM is fine -- as long as it has an auxiliary jack for external devices. Also consider satellite radio. After listening to 150 channels of mostly commercial-free music and talk, you'll realize how dead commercial radio is. And look for an audio system with duplicate controls on the steering wheel, which helps keep your eyes on the road and off the dashboard.
4. Power folding seats This is an upscale option on many vehicles with third-row seats. Push a button, and it's like magic: The seat disappears and you're left with a flat cargo space.
Why you should skip it: On well-designed vehicles like the Honda Odyssey and the GMC Acadia, it's a breeze to fold the seats manually -- pull or push a couple of levers and you're done. It's usually faster than waiting for a motor to do the job, plus there's no complicated machinery that might break.
Cost savings: $700.
Instead: On SUVs and minivans, a power-operated liftgate can be very helpful for people, especially women, who find the rear hatch too high to reach or heavy to close. Plus, if your hands are full with groceries or kids, you can pop open a power liftgate at the touch of a button.
5. Keyless ignition As long as the key fob is in your purse or pocket, all you have to do is push a button to start the car and drive off.
Why you should skip it: Keyless ignition is a cool feature that will probably be standard someday. But on most cars today, it falls one step short, since you still must have the key fob in hand to unlock the car. Then you have to find someplace to stash the key fob -- an invitation to misplace it. Some cars even have a little slot where you can store the "keyless" unlocking device. Isn't that the same thing the ignition slot used to do?
Cost savings: $200 to $400.
Instead: Remote start is a wonderful option, in winter and summer both. It lets you start your car from a distance, without being inside it, so you can cool or warm the car for a few minutes before you get in.
6. Xenon headlamps Also known as high-intensity-discharge headlamps, these give off more light than ordinary halogen lamps and have the cool blue tint that often is their main appeal.
Why you should skip it: The light beam from xenon bulbs shines farther than many people can see or react to, and some experts worry that the stronger beam could interfere with the vision of oncoming drivers.
Cost savings: $300 to $500.
Instead: Get automatic headlamps. You set the cockpit switch to "A," and the lights automatically go on when it's dark and off when it's light. Even better: You no longer have to worry about leaving your lights on and running down your battery.
7. Dual-zone climate control This lets you choose different temperature settings for the driver and passenger side. Tri-zone systems have a third control for the rear seat.
Why you should skip it: People who are really this fussy can achieve the same result by manipulating the air vents and fan settings. Besides, come on: If the driver's temp is 68, and the passenger's is 72, do you really believe it's not 70 inside the whole car?
Cost savings: $800 or more.
Instead: For people who drive in cold weather, heated seats are a delight -- and they often warm up faster than the climate system itself. Cooled seats seem to be less effective. But in both cases, they offer truly personalized comfort that doesn't bleed into somebody else's space.
8. Factory-installed navigation systems Nav systems are marvelous, especially for people who drive routinely in unfamiliar places. Letting the onboard computer guide you to an address or destination is far better than reading a MapQuest printout, calling for directions on a cell phone -- or, God forbid, having to stop and ask a stranger.
Why you should skip it: The problem with installed nav systems is they're very pricey -- upward of $1,500 in most cases. Plus, they're so popular that some manufacturers offer them only on the upper trim lines of a given model, which draws even more money out of your pocket.
Cost savings: $1,500 to $2,000.
Instead: Shop for a portable, off-the-shelf navigation system. Good ones are available for $500 or less and can be moved from car to car.
This article was reported and written by Rick Newman for U.S. News & World Report.
Published June 26, 2007
It had to happen: Somebody was bound to invent a car that can navigate better than a human. But the Lexus LS 460, which can parallel park on its own, is only for a select few: those willing to tack a few extra thousand onto a $60,000 to $70,000 car to compensate for their deficiencies behind the wheel.
But even among midprice cars these days, there's a dizzying menu of gizmos that can open and close the doors for you, create multiple environmental zones, keep your kids entertained (and silent) and even massage your back. By the time you've compiled your wish list, however, chances are you've added $5,000 or even $10,000 to the price of a car that seemed like a good deal when you were just looking at the list price.
Since I test-drive dozens of new cars each year, people often ask if this or that feature is worth paying for. The answer, of course, depends on your budget. Some options, such as flexible seating configurations or hidden storage nooks, provide lots of functionality for multitasking drivers and their families. But there are just as many features you'll never miss if you go without them, even though manufacturers and salespeople might tell you it's the latest must-have technology.
Not all of these features are offered a la carte. They're often bundled into packages, so you can't customize as specifically as you'd like. But if you eliminate a few unnecessary features, you may be able to bypass an entire $3,000 or $4,000 options package, or step down a whole trim line, and spend the money on better options or aftermarket products -- or just keep the cash in your savings. Some purists will argue with these choices, of course, and there are buyers who simply want the most loaded model they can get. But most car buyers can do without the following features and never know the difference:
1. Automatic stick shift This is also known by proprietary names such as Autostick, Tiptronic, Steptronic or Shiftronic. This allows you to shift gears without having to press a clutch, usually by pushing the gearshift up or down, or tapping paddles or buttons on the steering wheel.
Why you should skip it: Automatic shifting is meant to convey a sporty sensation to drivers who don't know how to drive a manual transmission or don't want to. But it's more of a nuisance than a thrill, unless you're driving a true sports machine, with Formula One-style paddles, like the Mercedes SLK or the BMW M5. On most other cars, people just end up leaving it in drive. Ho-hum.
Cost savings: $1,000 or more.
Instead: Shop for a car with a continuously variable transmission. This new technology increases engine speed without shifting from gear to gear. What drivers notice is a smoother ride and slightly better gas mileage.
2. All-wheel drive This sends power to all four wheels, instead of just the front or the rear axles.
Why you should skip it: If you live where there's sloppy weather and routinely drive in snow or mud, then, yeah, all-wheel drive is handy. But most people don't go out in snow anyway. And there are misperceptions about the safety benefits of all-wheel drive. It can help you get out of a snowbank, but it won't stop you from sliding on ice, or reduce braking distance. It also lowers gas mileage.
Cost savings: $1,500 or more.
Instead: Anti-lock brakes, stability control and side-impact and side-curtain air bags have proven safety value. Particularly on SUVs -- more prone to rollovers -- these safety options should be considered essential.
3. Compact-disc changer Audio systems that can handle multiple CDs are becoming standard -- just as CDs are going the way of vinyl.
Why you should skip it: With iPods and MP3 players becoming ubiquitous, there's no need anymore to junk up your car with stacks of CDs.
Cost savings: $500 or more.
Instead: A single CD player with AM/FM is fine -- as long as it has an auxiliary jack for external devices. Also consider satellite radio. After listening to 150 channels of mostly commercial-free music and talk, you'll realize how dead commercial radio is. And look for an audio system with duplicate controls on the steering wheel, which helps keep your eyes on the road and off the dashboard.
4. Power folding seats This is an upscale option on many vehicles with third-row seats. Push a button, and it's like magic: The seat disappears and you're left with a flat cargo space.
Why you should skip it: On well-designed vehicles like the Honda Odyssey and the GMC Acadia, it's a breeze to fold the seats manually -- pull or push a couple of levers and you're done. It's usually faster than waiting for a motor to do the job, plus there's no complicated machinery that might break.
Cost savings: $700.
Instead: On SUVs and minivans, a power-operated liftgate can be very helpful for people, especially women, who find the rear hatch too high to reach or heavy to close. Plus, if your hands are full with groceries or kids, you can pop open a power liftgate at the touch of a button.
5. Keyless ignition As long as the key fob is in your purse or pocket, all you have to do is push a button to start the car and drive off.
Why you should skip it: Keyless ignition is a cool feature that will probably be standard someday. But on most cars today, it falls one step short, since you still must have the key fob in hand to unlock the car. Then you have to find someplace to stash the key fob -- an invitation to misplace it. Some cars even have a little slot where you can store the "keyless" unlocking device. Isn't that the same thing the ignition slot used to do?
Cost savings: $200 to $400.
Instead: Remote start is a wonderful option, in winter and summer both. It lets you start your car from a distance, without being inside it, so you can cool or warm the car for a few minutes before you get in.
6. Xenon headlamps Also known as high-intensity-discharge headlamps, these give off more light than ordinary halogen lamps and have the cool blue tint that often is their main appeal.
Why you should skip it: The light beam from xenon bulbs shines farther than many people can see or react to, and some experts worry that the stronger beam could interfere with the vision of oncoming drivers.
Cost savings: $300 to $500.
Instead: Get automatic headlamps. You set the cockpit switch to "A," and the lights automatically go on when it's dark and off when it's light. Even better: You no longer have to worry about leaving your lights on and running down your battery.
7. Dual-zone climate control This lets you choose different temperature settings for the driver and passenger side. Tri-zone systems have a third control for the rear seat.
Why you should skip it: People who are really this fussy can achieve the same result by manipulating the air vents and fan settings. Besides, come on: If the driver's temp is 68, and the passenger's is 72, do you really believe it's not 70 inside the whole car?
Cost savings: $800 or more.
Instead: For people who drive in cold weather, heated seats are a delight -- and they often warm up faster than the climate system itself. Cooled seats seem to be less effective. But in both cases, they offer truly personalized comfort that doesn't bleed into somebody else's space.
8. Factory-installed navigation systems Nav systems are marvelous, especially for people who drive routinely in unfamiliar places. Letting the onboard computer guide you to an address or destination is far better than reading a MapQuest printout, calling for directions on a cell phone -- or, God forbid, having to stop and ask a stranger.
Why you should skip it: The problem with installed nav systems is they're very pricey -- upward of $1,500 in most cases. Plus, they're so popular that some manufacturers offer them only on the upper trim lines of a given model, which draws even more money out of your pocket.
Cost savings: $1,500 to $2,000.
Instead: Shop for a portable, off-the-shelf navigation system. Good ones are available for $500 or less and can be moved from car to car.
This article was reported and written by Rick Newman for U.S. News & World Report.
Published June 26, 2007
Tuesday, June 12, 2007
Close the gap in your car insurance
What could make a bad car deal worse? A wreck that leaves you owing thousands on a car you don't own anymore.
By Liz Pulliam Weston
If you did everything wrong while acquiring your last vehicle, you may still be able to do at least one thing right. And that's buying so-called "gap insurance."
Gap insurance kicks in when the amount your insurer would pay for your totaled or stolen car falls short of what you still owe on the loan or lease.
Chances are good you need gap insurance if:
You purchased a new car and didn't have a down payment of at least 20%.
You're leasing a car.
You're financing for more than four years.
You rolled debt from your last car into your current auto loan.
I outlined why these car-buying practices are usually bad ideas in "The real reason you're broke." They are, unfortunately, fairly common scenarios that typically leave people "upside down," or owing more on their cars than the vehicles are worth.
Yet gap insurance remains a relatively unknown product, said Patrick Olsen, managing editor of Cars.com.
"As soon as you drive off the lot, depreciation kicks in," Olsen said. "I don't think people are aware of the danger they could be in."
If you don't make a 20% down payment, for example, you'll be upside-down on the car from the minute you drive off the lot, and you'll typically stay that way for two to three years, depending on the length of your loan. If you get in an accident or the car is stolen during that time, you may be in trouble.
"The insurance company will pay you what the vehicle is (currently) worth, and that's not necessary the same as what you owe," said Mike Meredith, financial editor for MSN Autos. "It could be a lot less."
You could be pushed over the edge
Here's an example. You buy or lease a car for around $25,000. Several months down the road, it's totaled, but your insurance check covers only the car's current value, which is about $20,000. Not only do you have to find new wheels, but you're on the hook to the finance or lease company for that $5,000 gap. It's not uncommon for cars to lose two-thirds of their value in just three years.
If you rolled debt from your old loan into your new one, that amount you owe could be even larger. One out of four vehicles that are financed includes debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com, and the average amount of so-called "negative equity" is more than $4,000.
If your finances are already shaky, the gap between what you owe and what you're paid could be enough to push you right over the edge.
"It could be the difference between staying afloat and having to declare bankruptcy," said Phil Reed, consumer advice editor for Edmunds.com and co-author of the book "Strategies for Smart Car Buyers." At a minimum, you could be saddled with expensive and unwelcome debt.
If you're not sure where you stand, you can use the Kelley Blue Book tool on MSN Autos to see how much your car is really worth and compare that to what you owe. Insurers typically pay an amount somewhere between the car's trade-in value and what you'd get in a private sale.
Not to worry
Now, there are two scenarios where underwater drivers don't have to worry about gap insurance:
If it's already included in your lease. In some states, including New York, leases by law must include gap coverage, Olsen said.
If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of what the car's worth. You can try reading your policy to see if you're covered for any gaps, or simply call your insurer and ask.
If you don't have coverage already, the solution fortunately doesn't have to be that expensive. A premium of a few hundred dollars should cover you for the life of the loan or lease. You typically can buy the coverage:
From the dealership or auto finance company. It's probably the most expensive choice, especially if you roll the cost into your monthly note. You'll be paying interest on it, plus paying for coverage even after you're no longer upside-down on your loan.
From your current auto insurer. It's usually the best choice, if your insurer offers the coverage. Farmers Insurance, for example, offers gap coverage at a flat rate of $25 every six months to Washington drivers. You can drop it once you're sure you're in the black.
From another insurance carrier. You can look for gap insurance providers; make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).
The best time to shop for coverage is before you even set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.
"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.
If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.
Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.
Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
By Liz Pulliam Weston
If you did everything wrong while acquiring your last vehicle, you may still be able to do at least one thing right. And that's buying so-called "gap insurance."
Gap insurance kicks in when the amount your insurer would pay for your totaled or stolen car falls short of what you still owe on the loan or lease.
Chances are good you need gap insurance if:
You purchased a new car and didn't have a down payment of at least 20%.
You're leasing a car.
You're financing for more than four years.
You rolled debt from your last car into your current auto loan.
I outlined why these car-buying practices are usually bad ideas in "The real reason you're broke." They are, unfortunately, fairly common scenarios that typically leave people "upside down," or owing more on their cars than the vehicles are worth.
Yet gap insurance remains a relatively unknown product, said Patrick Olsen, managing editor of Cars.com.
"As soon as you drive off the lot, depreciation kicks in," Olsen said. "I don't think people are aware of the danger they could be in."
If you don't make a 20% down payment, for example, you'll be upside-down on the car from the minute you drive off the lot, and you'll typically stay that way for two to three years, depending on the length of your loan. If you get in an accident or the car is stolen during that time, you may be in trouble.
"The insurance company will pay you what the vehicle is (currently) worth, and that's not necessary the same as what you owe," said Mike Meredith, financial editor for MSN Autos. "It could be a lot less."
You could be pushed over the edge
Here's an example. You buy or lease a car for around $25,000. Several months down the road, it's totaled, but your insurance check covers only the car's current value, which is about $20,000. Not only do you have to find new wheels, but you're on the hook to the finance or lease company for that $5,000 gap. It's not uncommon for cars to lose two-thirds of their value in just three years.
If you rolled debt from your old loan into your new one, that amount you owe could be even larger. One out of four vehicles that are financed includes debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com, and the average amount of so-called "negative equity" is more than $4,000.
If your finances are already shaky, the gap between what you owe and what you're paid could be enough to push you right over the edge.
"It could be the difference between staying afloat and having to declare bankruptcy," said Phil Reed, consumer advice editor for Edmunds.com and co-author of the book "Strategies for Smart Car Buyers." At a minimum, you could be saddled with expensive and unwelcome debt.
If you're not sure where you stand, you can use the Kelley Blue Book tool on MSN Autos to see how much your car is really worth and compare that to what you owe. Insurers typically pay an amount somewhere between the car's trade-in value and what you'd get in a private sale.
Not to worry
Now, there are two scenarios where underwater drivers don't have to worry about gap insurance:
If it's already included in your lease. In some states, including New York, leases by law must include gap coverage, Olsen said.
If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of what the car's worth. You can try reading your policy to see if you're covered for any gaps, or simply call your insurer and ask.
If you don't have coverage already, the solution fortunately doesn't have to be that expensive. A premium of a few hundred dollars should cover you for the life of the loan or lease. You typically can buy the coverage:
From the dealership or auto finance company. It's probably the most expensive choice, especially if you roll the cost into your monthly note. You'll be paying interest on it, plus paying for coverage even after you're no longer upside-down on your loan.
From your current auto insurer. It's usually the best choice, if your insurer offers the coverage. Farmers Insurance, for example, offers gap coverage at a flat rate of $25 every six months to Washington drivers. You can drop it once you're sure you're in the black.
From another insurance carrier. You can look for gap insurance providers; make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).
The best time to shop for coverage is before you even set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.
"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.
If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.
Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.
Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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