The process in negotiating for a brand new car never really changes does it? The salesperson shows you a new car, you expect more discount that they are prepared to give, they offer less money for your part exchange than you were expecting and then the ‘charm offensive’ begins from the well oiled sales patter employed by the salesperson with the shiny teeth, and probably equally shiny suit.
Now if you are like many of us, you may not have the cash to pay the balance required for this sale to proceed. This means that you will need some form of finance agreement, if this difference is to be met. This realisation will put an even wider smile on the already giddy salesperson’s face, as the added bonus of ‘finance commission’ appears on the horizon. With an array of Hire Purchase and PCP deals to use, this can make life much more opportune for a well drilled salesperson. You see ‘its only £10 a month more’ can be such a plausible argument when you are in negotiation for a new car, but in reality that could mean an extra £600 over a 5 year finance agreement.
If you are looking to secure your new vehicle on finance then you have to have your wits about you. This is because even after you have agreed a monthly figure for the car a whole new phase of the sale will begin……………the ‘add ons’.
Motor dealer ‘add on’ the cost to you
In many cases this new aspect of the sale can be met with even more vigor by the salesperson, and this is simply because their sales commission could be doubled, trebled or even more with a successful pitch on additional products. These products may include tyre insurance, services plans, alloy wheel and cosmetic repair insurance and of course Gap Insurance.
It is with a degree of irony that Gap Insurance is often introduced at this stage. Up to the point of agreement on the purchase of the vehicle, the sales person has been telling you that this new vehicle is a ‘must have’ and terrifically good value. By introducing Gap Insurance they have to appeal to all your concerns over the affordability of the vehicle in the first place.
“What happens if something goes wrong? You have no car and all these payments still to make”.
Of course if they had said this when you first came in then you probably would have thought twice about the car in the first place! However, the ever helpful car sales person has a great idea.
“Why don’t you just put the Gap Insurance into the finance, it will just be a few pounds a month more”
Sounds great, until you realise what it is actually costing you!
The true cost of adding Gap Insurance to your finance agreement
A typical 3 year Return to Invoice style Gap Insurance is around £399 in a motor dealer. If you have the finance over 5 years, then the cost of this could simply be added to the amount you borrow. Let us say you pay 5% flat rate interest, per annum’ for the loan. This will mean that your Gap Insurance will only cost about £8.31 per month, over 60 months.
Does that sound so bad?
Well over 60 months your £399 Gap Insurance policy would end up costing you £498.75, and that is a whopping £99.75p in interest.
The second point, which is often glossed over in the motor dealers, is that you are buying a 3 year Gap Insurance and paying for it over 5 years. That means you are paying £8.31 per month, in years 4 and 5, and you could not even claim on the cover anyway!
When you consider that you could buy an equivalent 3 year Return to Invoice Gap online for around £100, or even a full 5 year policy for around £200, then it does appear folly to contemplate even buying the Gap Insurance from the dealer in the first place. However, even if you do then you do need to consider the cost carefully, even if it is ‘only a few pounds more a month’.