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Are Car Loan Add-Ons Worth the Money?

September 30, 2010 by

When you’re looking at car loans, one thing you’ll almost always find these days is that there’s somewhere at the end when you’re about to sign the loan paperwork where you have a chance to buy something extra. Whether you’re sitting in the loan officer’s office at the bank who’s selling you on the benefits of GAP insurance, or whether the dealership finance manager has a warranty package that he’s determined to sell you, you can pretty much count on one final sales pitch.

This isn’t bad in and of itself. Some of the add-on type products are useful, and others aren’t. While it might be nice to know about all of the options up front before you agree to buy a certain vehicle, the best way to approach the situation is to ask ahead of time what options and add-ons can accompany the loan. Do this before a loan amount is ever discussed, and you’ll be ahead of the game.

Here are some of the most common car loan add-ons:

  • Extended Warranty. One of the add-ons you’ll be offered is an extended warranty on the vehicle. Depending on the age and condition of the vehicle, as well as the cost of the warranty, this may or may not be a good idea. Make sure you know what’s covered and what isn’t if you do decide to consider the extended warranty.
  • GAP Insurance. GAP insurance covers the difference between the value of the car that your insurance company will pay if the car is totaled and the amount you owe on your loan. This insurance means you don’t wind up owning a couple grand on a car that’s sitting in a junkyard somewhere. If you decide to get GAP, try to get it directly from the lender rather than the dealership, as the dealership tacks on a hefty markup.
  • Theft protection. Sometimes, you’ll have the opportunity to purchase theft protection insurance. This is similar in some ways to GAP insurance in that it’s designed to pay your loan if you no longer have the vehicle due to theft. Here again, make sure to understand all of the details of the policy you’re being offered, and make sure you shop around a bit to get the best price.