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When Your Car Loan Outlives Your Car


It’s a tough situation. Many people need to borrow money to finance a car just to get to work. If you can afford a new car, your warranty should see you through the term of your loan on most major repairs. But what about those of us that buy a used car?

Many used cars don’t come with warranties. If the car breaks down and can’t be driven, you’re still on the hook.

The vast majority of car loans are just that: loans. The credit union makes the loan in good faith, and you are obligated to payback the money on schedule – regardless of the condition of the vehicle. But if the vehicle is not driveable while you still owe money on it, you may find yourself in a bind. Here are some things you can do to lessen your exposure.

Keep your insurance current.
This is a big help, because if you lose the use of your car due to theft, or an accident, your insurance company will reimburse you. The reimbursement will pay off all or a substantial portion of your loan. The only thing you are out is your deductible, and you could then apply and qualify for a new auto loan.

Note: An auto loan from Industrial Federal Credit Union, and most lenders, will require insurance, so be sure to check your fine print on your loan agreement.

Don’t skimp on maintenance.
Many breakdowns are preventable and a little bit of routine maintenance will help keep it running well.

• Check the oil regularly.
• Change your oil and filter as scheduled.
• Use the recommended transmission fluid, brake fluid and coolant.
• Keep your tires balanced. Monitor their wear -- bad tires cause accidents.

Buy “GAP” (Guaranteed Asset Protection) coverage.
Unless you come up with a large down payment, chances are you will, at some point, owe more on the loan than the car is worth. If you crash your car, your insurance company will reimburse you only up to the insured value of the car. But if you own “GAP” coverage, your “GAP” policy will reimburse you the GAP you may have between the insured value of the car and the balance of your loan.

GAP is available to any IFCU member who is financing a new or used vehicle with IFCU, or refinancing with IFCU from another financial institution.

Click here to learn more.

Consider the warranty.
Think about purchasing the warranty on your used car, if one is available. If a major engine, transmission or drivetrain issue is a risk you can’t afford to bear, then you might need to consider buying the warranty. Otherwise, you run the risk of owing money on a car you can’t even drive. Don’t take risks you can’t afford to lose.

Mechanical Breakdown Protection (MBP)
If the factory warranty has expired, IFCU has partnered with Mercury to offer a Mechanical Breakdown Protection warranty program. This warranty program provides protection against the cost associated with most of your vehicle's mechanical breakdowns beyond the normal terms and conditions of the manufacturer's standard warranty and after the warranty has expired.

Purchasing a Mercury MBP through IFCU ensures that the investment in your vehicle is protected and reduces the possibility of out-of-pocket expenses.

Click here to learn more.

Buying a used car doesn’t have to be a risky purchase and Industrial Federal Credit Union can help you protect your investment without breaking the bank.

^IFCU does not provide, and is not responsible for, the product, service, or overall content available from Mercury (MBP) and Frost (GAP). IFCU neither endorses the information, content, presentation, or accuracy nor makes any warranty, express or implied. IFCU’s privacy and security policies do not apply. You should consult the privacy disclosures from stated companiesfor further information.