Mind the GAP: When to consider guaranteed asset protection for your loan

Even the most cautious driver can get into an accident that causes financial hardship. Guaranteed asset protection (GAP) coverage can provide drivers like you with peace of mind and financial security.

What is guaranteed asset protection (GAP)?

Guaranteed asset protection coverage has one purpose: to protect the investment you made in your vehicle in the worst-case scenario: if your car is declared a total loss or is stolen and your auto insurance settlement does not cover the cost to pay off your loan or lease.

In these situations, GAP pays for the difference between the value of your car at the time of loss and the remaining loan or lease balance. 

Specifically, it is designed to cover the “gap” between the vehicle’s value and the amount you still owe on your loan or lease, subject to certain limitations and conditions.1

How GAP works

GAP protection is a cancellation or waiver of your remaining loan balance with your credit union or bank. GAP is in addition to any payout you receive from comprehensive or collision coverage through your auto insurance if your car is totaled or stolen. Some GAP products will also cover your insurance deductible.

An example of how GAP works

John has a car accident and his one-year-old financed vehicle is a total loss beyond repair. His loan balance is $15,000. 

  • His auto insurance company settlement, based on his vehicle’s market value at time of loss, is $11,000.
  • His insurance deductible is $1,000.
  • The total amount he would owe without GAP is $5,000.
  • The total mount he owes with GAP: $0.

What GAP covers

Many new or used vehicles are often eligible for GAP, but GAP can cover more than just your car. It can also cover:

  • Jet skis
  • Motorcycles
  • Boats
  • Snowmobiles
  • ATVs
  • Travel trailers
  • Motorhomes/RVs 

GAP does not cover:2

  • Vehicle payments due to financial hardship, job loss, disability or death
  • Car repairs
  • The value of your car or balance of a loan if your car is repossessed
  • A rental car while your car is undergoing repairs
  • A new vehicle's down payment
  • Extended warranties you add to your car loan         

How GAP works with depreciation

A new vehicle loses value the minute you drive it off the lot. The minute a person drives a new car off the lot it loses approximately 10 percent of its value. By the end of the first year, that car will lose an additional 10 percent on average.3

Generally speaking, auto insurance pays only what a vehicle is determined to be worth at the time of loss. When you owe more on your loan or lease than the assessed value of the vehicle, GAP covers the difference. 

When you really need GAP

If you buy a vehicle that depreciates quickly, you should consider GAP coverage.  

GAP may also be worth considering if you:4 

  • Make a smaller down payment (less than 20 percent) – or none at all
  • Finance a car loan beyond 60 months
  • Drive a lot of miles per year, which reduces a car’s value more quickly
  • Lease a car (in which case, GAP is usually required)     

How to get GAP

You can purchase a GAP waiver or insurance policy several different ways at the time you buy your vehicle, through a variety of different companies.4

  • At the dealership for a one-time, lump-sum cost, or rolled into your loan or lease payments
  • Through your auto insurance company as part of your regular insurance payment
  • At your bank, credit union or financial institution
  • On a one-time basis through a company that only sells GAP (often online)

Depending on the source you choose, the company you’re doing business with may be different. The company the dealership uses is probably different than who your auto insurance would use.

Incorporating GAP payments into your auto loan spreads your payments out over time rather than paying one lump sum. Remember that if you add the coverage to your loan, you’ll also be paying interest on it.

GAP protection is fully refundable within the first 60 days. Thereafter, it's dependent upon the terms of your contract or policy. 

Interested in GAP?

Your bank, credit union or finance company may offer GAP. Talk to your representative to learn about your options.

GAP is a loan deficiency waiver, not an insurance product. 

1. Less delinquent payments, late charges, refundable service warranty contracts and other insurance related charges. See the GAP Waiver Addendum for all terms, limitations and exclusions. 

2. CarInsurance.com, “5 tips for buying GAP insurance for your new car,” Mark Smith, June 2017

3. CARFAX.com Car Depreciation: 5 Things to Consider  May 2017

4. NERDWALLET, “Gap Insurance: What It Is and Who Needs It,” September 2017

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