So, last week I got in a wreck and totalled my car. What a pain in the ass! Talk about excessive paperwork. It was a 2008 Kia Spectra, and we’d only had it for a year and a half. Thank goodness for GAP Insurance!
So we bought the Spectra last May. We traded in our ’03 Kia Rio, (dealership gave us $5000 for it. We still owed $3500, so the remaining $1500 was the downpayment for the Spectra) and ended up financing the Spectra for about $15,000. We purchased the super-extended warranty and gap insurance. Basically, gap insurance pays the “gap” between the insurance payoff and loan payoff if you’re car is totalled. In our instance, we paid $475 for it upfront, and they’ll be paying $1700 to cover the difference between the car’s value and the remaining loan balance.
I highly recommend buying Gap Insurance, unless you’re putting down a significant down payment. Better yet, don’t finance at all! 
You can do the math to see if it’s worth it. How much are you financing, versus the car’s value? If you’re paying 50% down, you probably won’t run the risk of totalling the car before the loan balance is less than the value of the car.
Unfortunately for us, we bought a new car (’09 Kia Optima. Noticing a trend??) with no down payment. On the upside, Tonkin Kia paid for our Gap Insurance on the new car, since the old one was a total. Actually, we got a very nice deal. Brand and dealer loyalty count for a lot! Anyway, we’ll be “upside down” on this car for a while. Which is why I made SURE we got Gap Insurance again!
If I was going to advise someone about buying a new car, this is what I would say:
1.) Decide if you want new or used. Duh. Used cars, even if only 2 or 3 years old, have already taken the initial hit in value. And they’re less expensive! In our case, I didn’t want a used car “just in case”. We don’t have much of an emergency fund saved yet, so I didn’t want to be stuck with unexpected repairs, and no cash.
2.) Estimate what your payments will be, and start setting that amount aside before you buy. Like, if your car is starting to go, but you still have some time, set aside the money you’d pay for a new car, so you can see how it feels in your budget before you sign the papers. Then, if it works, you can buy the car, or if not, choose a less expensive car. And if you’ve done this for a few months, you can use it for a down payment, or as a “Vehicle Maintenance” Fund.
3.) Drive the car until it won’t drive anymore. Which is what we were planning with the Spectra. Actually, that’s what we did with the Spectra! I just anticipated having a few more years (like 10) until that happened!
4.) Maybe this should be #1. Ultimately, if I’m giving advice, I’d have to say save save save until you can afford to pay cash for a car. Yes, that’s alot of saving, but that’s always preferable to taking on debt! But I’m also trying to be honest here. At least in this case it’s secured debt, which is better than unsecured debt (ie: credit cards). Whatever you do, just figure out what you can afford, and don’t get in over your head! You’re all smart people and can figure it out!
