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Novice guide to Contract and Lease Hire GAP Insurance.


Contract and lease hire finance packages are an excellent way to buy any vehicle.


It is low commitment and ordinarily low cost compared to buying the vehicle outright.


You get the use of the vehicle in the best years of life, and then someone comes and takes it away, leaving you free to start again.


Your lease or contract hire company will purchase a car. 


They then estimate how much it should be worth at the end of a set number of years with a maximum set mileage. So how much will they be able to sell the vehicle for, and ultimately, how much will they get back? 


You pay the bit in the middle plus a little extra for interest and profit. This is then split into your monthly amounts. This is a rough guide for calculating your monthly payments.


Easy, simple and straightforward, and everyone wins. You get a lower monthly payment and a lovely new vehicle, and the contract hire or lease company makes money.


The issues arise if your vehicle is involved in an accident or stolen and not recovered, and your motor insurance company decide to write the car off.


Remember that for your lease company, you have not bought a car. 


They are not interested in the colour or the specification. Or if you wanted a panoramic roof or upgraded alloy wheels. It is just a financial amount.


It does not matter if you take delivery of the vehicle and buy yourself out of the contract in six months, you make your payments and hand the car back at the end or if your vehicle is written off. 


You have borrowed a lump of money, and they will now want it back.


So what happens when your lease or contract hire vehicle is written off?


Your lease company will then calculate an early settlement figure. This is the amount you still owe. 


Your fully comprehensive motor insurance company will offer your lease company the market value of your vehicle of the day it was written off.


You have to pay the difference between your insurance company's settlement and the early termination figure that your lease company give you.


This chunk of money can be made up of lots of different things, for example 

  1. A protortion of outstadning rentals
  2. Early Termination fees


Remember we said that your lease company would consider what they think they can sell your vehicle for at the end of your contract and that this would impact your monthly payments. 


If you make your monthly payments and hand your car back at the end, if they have got this market value figure wrong, and they lose money, it is their tough luck.


If they get it wrong and there are differences in what they thought the car would be worth and its actual value, and you do not have the vehicle to give them back without any form of gap insurance protection, it is your responsibility. 


There is lots of information on the net regarding contract and lease hire gap insurance, most of which is unclear and counterproductive at best. To compound the issue, each leasing company will call that chunk in the middle something different, your motor insurance company something different again.


From our perspective, no matter what acronym your motor insurance or lease company calls the outstanding amount, we call the chunk of money in the middle a shortfall. Providing it does not include any late payment charges or arrears, your Total Loss Gap Insurance policy pays it. 


In summary ( T&c's Apply ) - As long as you are up-to-date with your monthly rentals and there are no late payment charges, your Total Loss Contract and Lease Hire Gap Insurance will pay the difference between your insurance company's settlement and the shortfall needed to settle your finance agreement.