A Debt Cancellation Agreement, is a win-win for the customer and the finance company.
Debt cancellation agreements can be an alternative form of coverage to the finance company’s requirement for physical damage insurance on the installment contract.
Most in-house financed customers would like to have property damage insurance. Many cannot afford property damage insurance, since their credit score is used, when calculating the insurance premium, often resulting in expensive insurance costs. The customers can afford the vehicle payment, or the insurance payment, but not both many times. The customer needs their vehicle for transportation, so the vehicle payment is made first, the insurance is paid, if funds are available. Dropped insurance notices are then sent to the finance company, who contacts the customer to get the insurance reinstated or force places insurance. The insurance is again dropped after a period for nonpayment, and then the notification process starts again, creating a vicious cycle.
Debt Cancellation is not insurance, it is an amendment to the retail installment contract where the customer pays the dealership or finance company a fee and in exchange, the dealership or finance company waives the customer’s debt minus a small deductible, (depending on state law), when the vehicle is total loss or stolen and not recovered. Debt Cancellation is based on the amount financed, not on the customer’s credit score. In almost every case, it is less expensive than physical damage insurance. Debt cancellation agreements can be added to the retail installment contract, becoming part of the customer’s payment and lowering the customers total outlay to own a vehicle. The lender benefits, since no insurance tracking is required and the claim process is very easy.
States do require liability insurance on vehicles. Debt cancellation is not insurance. Customers will need to obtain liability insurance from an insurance company on the vehicle. Liability insurance is affordable.
Is debt cancellation the answer for all vehicles? No, debt cancellation waives the customer’s debt upon a total loss or theft, and does not cover partial losses such as fender benders. Debt cancellation agreements may not be the correct product for vehicles financed over long terms with higher actual cash values.
AVP has wide variety of customers across the nation using debt cancellation agreements. With this experience, we can help you decide if debt cancellation will work for you. Contact us, and we will provide you, the pro-forma and information required, for you to decide if debt cancelation agreements will work for you.
FAQs
A debt cancellation agreement (DCA) is an agreement that the holder of a retail installment contract will cancel a specified amount owed on the contract if the vehicle is stolen or totaled.
Is debt cancellation the same as gap insurance? ›
In short, debt cancellation agreements (sometimes referred to as “Gap”) are contracts that cover the difference - or the gap - between what your new vehicle is actually worth and the amount you still owe on it.
What is the benefit of debt cancellation coverage? ›
In general, debt cancellation eliminates your loan if you die, or cancels the monthly payment if you become disabled, unemployed, or suffer some other hardship. Debt suspension may temporarily postpone all or part of your monthly payment while you are facing a hardship.
What is a debt cancellation agreement or guaranteed asset protection waiver? ›
The debt cancellation contract or GAP Waiver states that the borrower is released from his or her obligation to pay the deficiency remaining between the primary insurance settlement and outstanding loan balance if the vehicle securing the loan is totaled or stolen.
Is debt cancellation good? ›
Forgiven debt often means paying less than the initial amount owed, saving borrowers money in the long run. Debt forgiveness can eliminate the stress of dealing with aggressive debt collectors, providing a sense of relief and allowing you to focus on rebuilding your financial health.
What are the disadvantages of debt cancellation? ›
You May End Up with More Debt Than You Started
Stopping payment on a debt means you could face late fees and accruing interest. Additionally, just because a creditor agrees to lower the amount you owe doesn't mean you're free and clear on that particular debt.
Does cancellation of debt go on your credit report? ›
Unless debt cancellation comes in the form of bankruptcy or debt settlement, cancellation of debt doesn't always impact your credit score. However, debt cancellation may not be all good news for you. In some cases, you may have to pay taxes on canceled debt, as the government may consider it taxable income.
Will gap insurance pay off my loan? ›
When you file a qualifying claim, your comprehensive or collision coverage will pay the actual cash value (ACV) of your vehicle, minus your deductible. Your gap coverage may then pay the difference between your vehicle's ACV and the outstanding balance of your loan or lease.
Do I get money back if I cancel my gap insurance? ›
You'll only receive a refund for the GAP insurance that you haven't used. For example, if you cancel your policy after three months of coverage, you'll only get a refund for the remaining nine months (if you paid for a year of coverage). The amount of your refund is based on how you pay your insurance bill.
What is excluded from cancellation of debt? ›
You may exclude the cancellation of indebtedness if it was a: Discharge of qualified principal residence indebtedness. Discharge of indebtedness in a title 11 case. Discharge of indebtedness to the extent insolvent (not in a title 11 case)
Debts forgiven by a creditor are generally considered taxable income. Canceled debt will typically be reported by the creditor to the IRS and to the debtor on a 1099-C form. Here is a more detailed look at each of the options for canceling debt, and the pros and cons of each.
Does cancellation of debt affect your tax return? ›
Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Is debt cancellation the same as debt forgiveness? ›
If your debt is forgiven or discharged for less than the full amount owed, the debt is considered canceled for the forgiven or discharged amount that you no longer need to pay. Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting, the amount you're obligated to pay.
Is a debt cancellation agreement refundable? ›
If a debt cancellation contract or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the bank shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise.
What is debt protection on a car loan? ›
That's where Debt Protection comes in. Under the Debt Protection program, your loan balance may be canceled. You benefit from the peace of mind knowing you and your credit rating are protected — and most importantly — that your family is protected. Availability and Plan Information.
What does it mean when you get a cancellation of debt? ›
If your debt is forgiven or discharged for less than the full amount owed, the debt is considered canceled for the forgiven or discharged amount that you no longer need to pay. Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting, the amount you're obligated to pay.
What happens if I cancel my debt agreement? ›
Effects of terminating a debt agreement:
Creditors can commence or continue recovery for the payment of debts that you owe (including interest). Creditors can apply to make you bankrupt through court. Information about your debt agreement will remain on the National Personal Insolvency Index (NPII) for a limited time.
Does debt cancellation affect credit score? ›
Unless debt cancellation comes in the form of bankruptcy or debt settlement, cancellation of debt doesn't always impact your credit score. However, debt cancellation may not be all good news for you. In some cases, you may have to pay taxes on canceled debt, as the government may consider it taxable income.
What does debt cancellation agreement fee paid to the seller mean? ›
Debt Cancellation is not insurance, it is an amendment to the retail installment contract where the customer pays the dealership or finance company a fee and in exchange, the dealership or finance company waives the customer's debt minus a small deductible, (depending on state law), when the vehicle is total loss or ...
