When Your Loan Outlives Your Car

When you buy a new car, the warranty usually lasts through the term of your loan. What about used cars that don’t come with warranties? If the car breaks down, you’re still owe the monthly loan payment.


If the vehicle is disabled while you still owe on it, you may find yourself in a bind. Here’s how you can reduce your exposure.

Keep your insurance current. If theft or an accident makes the car unusable, your insurance company will reimburse you to pay off your loan. You’ll still need to pay your deductible – so make sure it’s an amount you can afford. Many car loans require insurance, so check the fine print on your loan agreement.

Buy “gap” coverage. Gap insurance covers the difference between what your insurance company pays for a totaled vehicle and what you owe on the loan. City CU’s gap insurance covers the life of the loan and adds only dollars to your monthly payment.

Don’t skimp on maintenance. Many problems are preventable – or can be delayed until after you pay off the car. But don’t neglect routine maintenance: check the oil, change your oil and filter as scheduled, use the correct transmission fluid, brake fluid and coolant. Keep your tires balanced, monitor their wear and rotate them.

Invest in a warranty. Think of a warranty as insurance for your car’s mechanics. A major engine, transmission or drive train issue could mean you owe and pay for a car you can’t even drive.