There will probably be a huge surge in interest in the Hyundai Assurance Program after its advertisement during the Superbowl.  Here’s an overview of the program and analysis of whether it’s worth considering.

How It’s Advertised:

Buy a new Hyundai and you can return it within a year if you lose your job with no impact on your credit rating.

Program Details from Hyundai:

Eligible Events to Return Your Vehicle

• Involuntary Unemployment
• Physical Disability
• Loss of Driver’s License due to Medical Impairment
• International Employment Transfer
• Self-Employed Personal Bankruptcy
• Accidental Death

Other Terms

• You have to lease or finance the purchase through Hyundai
• The covered event must happen in the first year
• Your loan must be current and at least two payments must be made
• If you have more than $7,500 in negative equity, you pay the difference

Analysis

The first feature of the program that strikes me is that in order to be eligible, you have to use Hyundai’s financing and only new cars are eligible.  So the two questions to ask yourself are 1) Should you buy a new car? and 2) Should you finance through the dealer?

One of the most repeated pieces of financial advice out there is that you should never buy a new car.  Since new cars cost more and depreciate so quickly compared to used cars, they are typically a very wasteful use of your money.  Even an almost new car, such as a certified pre-owned, is a better idea then a new one and the truly frugal minded always opt for an even older used car.  Still, some people are inclined to buy new.  If you’re hung up on a new car, the second question comes into play.  Conventional wisdom holds that paying cash for cars is the right way to go, but I’ve previously discussed that when it comes to new cars, paying cash can actually cost more.  Assuming you decide to finance the purchase, the real question to consider is how favorable the terms of Hyundai’s financing are compared to alternatives available to you.

To help place a value on the ability to return the car, it’s important to consider its limitations.  The qualifying event must happen within the first year, and you have to be current on your loan and have made at least two payments.  So practically, the window of the event occurrence is really between months 2-12.  The program covers up to $7,500 in negative equity.  To get a sense of the negative equity at 2 and 12 months, I priced a new 2008 Hyundai Sonata on Kelly Blue Book.  It reported that customers were typically paying $21,636 for a new 2008 Sonata (4-door SE automatic).  I then looked up the trade-in value for the same car in excellent condition with 2,000 and 12,000 miles.  I assumed that normal use, or lease terms amount to 1,000 miles a month or 12,000 a year.   With 2,000 miles the value was $12,975 and with 12,000 miles it was $12,225.  Using these numbers, you would have negative $8,661 and $9,411 in equity respectively.  The portion of your payments that applied to principal would have slightly reduced these numbers, depending on your loan terms.  Even so, the roughly $1,160 and $1,900 in negative equity above $7,500 would be due when turning in your car.  Coming up with this money might be extremely difficult, or a low priority if you just lost your job.  Also remember that you’ll have to purchase a replacement car.

The Bottom Line

Like so many car dealer incentive programs, the Hyundai Assurance Program is a nice benefit if you were planning to purchase an eligible car anyway, but isn’t worth going out and buying a Hyundai just because of the program.  If you are attracted to the program because there’s a good chance that you’ll lose your job in the next year, ask yourself whether you should be buying a new car to begin with.  The people who will benefit the most from this program are those who never expect to use it and are simply eligible for it because they happen to meet all of the program rules.  If an event triggers their eligibility, they will be able to consider whether or not it makes sense to take advantage of the program at that time.