Add-Ons Offered With a Lease Buyout Loan: GAP, Service Contracts and Saying No
When you finance a lease buyout, extras like GAP and service contracts may be offered. What the FTC and CFPB say about declining them, shopping elsewhere and checking the contract.
If you finance a lease buyout, the paperwork may include optional products on top of the loan. The FTC describes car add-ons as optional products or services offered when you buy, with rust proofing, fabric protection, gap insurance and service contracts as examples. A buyout is a purchase, so the same advice applies.
You can say no, or wait
The FTC's add-on tips say you can decline an add-on or put the decision off, and that you may find you do not need it, or can get it later for less. Each one raises your total cost, and several together can strain a budget. If a particular add-on appeals to you, the FTC advises negotiating its price like any other part of the deal.
GAP, specifically
GAP covers the difference between what a car is worth and what you owe on it if it is totaled or stolen. The CFPB makes three useful points:
- Financing it costs interest. If you buy GAP from the dealer, the cost is added to the amount financed, so you pay interest on it. Paying up front can avoid that.
- You can shop for it. Some insurers offer GAP, and it may already be part of your auto policy. A bank or credit union may offer it if you finance with them.
- You may only need it for a while. Coverage matters only while you owe more than the car is worth. The CFPB advises finding out in advance how to cancel and whether you can get a refund of the unused portion.
On a buyout, whether you owe more than the car is worth is the same question as whether the payoff exceeds its market value. If the car is worth more than the payoff, there may be nothing for GAP to cover. If the payoff is higher, GAP deserves a closer look.
Service contracts
The FTC lists service contracts among add-ons but does not detail their terms, so the answers are in the contract itself. Ask what is covered, what is excluded, who administers it, whether it can be cancelled for a refund, and what you pay if you cancel. On a car that has just come off a lease, ask whether any manufacturer warranty remains, since that affects what the contract adds.
Check the paperwork
- Confirm the contract lists only the add-ons you agreed to, at the prices you were quoted.
- Look at the amount financed compared with the payoff plus taxes and fees. A gap between the two is where add-ons hide.
- Ask for the loan terms with and without each add-on so you can see what it changes.
A good habit for a buyout is to get the written payoff first, then compare financing offers on that number alone and add extras only if you choose to.
Common questions
Do I have to buy GAP or a service contract to finance a lease buyout?
The FTC describes add-ons as optional and says you can decline them or put them off. Check your specific loan documents.
Is GAP cheaper somewhere else?
It can be. The CFPB notes some insurers, banks and credit unions offer GAP, and it may already be in your auto policy. Compare before you agree to a dealer price.
Can I cancel an add-on later?
The CFPB says certain add-ons may be cancelled for a refund after purchase. Ask how, and what refund applies, before you sign.
Related
- Wear-and-Tear Charges vs. Buying Your Lease: What the Inspection Decides
- What Federal Law Says Your Car Lease Must Tell You About Buying It
Sources
Champion Auto Finance
Thinking about buying out your lease? Learn more and get started at championautofinance.com, or ask Joe a question.
More from the blog
- Wear-and-Tear Charges vs. Buying Your Lease: What the Inspection Decides
- The Odometer Statement You Sign When You Buy Your Leased Car
- What Federal Law Says Your Car Lease Must Tell You About Buying It
Champion Auto Finance is a NJ DOBI-licensed financing partner, not a lender, coordinating lease buyout financing for drivers nationwide. Approvals and terms are subject to lender underwriting. Nothing on this site or in these episodes is legal, tax or financial advice.