GAP insurance is not for everyone, but if you’re financing a car, it could make all the difference. Guaranteed asset protection, to use its full name, is an optional product that protects your finances in the event your car is stolen or totaled in an accident. While car insurance will cover the market value of a vehicle, if you owe more than that on your loan, GAP insurance steps in to cover the rest and save you from delving into your own pockets.
Situations where GAP insurance is helpful
Cars, as you may have heard, are depreciating assets and it’s easy to get upside down on your financing. That’s particularly the case on new cars which lose value quickest, at a rate of 20 percent in the first year. Negative equity will also often arise if you make only a small down payment to offset depreciation, or opt for a long loan term, for example.
The Insurance Information Institute recommends considering GAP insurance on new car in these cases:
- Down payment was less than 20 percent
- Financing is for 60 months or more
- The vehicle purchased depreciates faster than average
- Negative equity from an old car loan was rolled over into the new one
- The vehicle is leased – GAP insurance is generally required for leases
Ways to buy
When buying a car from a dealership, it’s common to be offered GAP insurance, along with other optional extras, when you sit down in the F&I office to pay for the vehicle. If you’re financing the purchase, you may decide to include GAP insurance within that financing. What if you were preapproved for a loan? Lenders such as RoadLoans enable you to add this product if it fits into the loan amount for which you were approved. You can also buy GAP insurance from most auto insurers, so it may be possible to include it within your coverage.
The road ahead
When approaching the car-buying process, looking ahead to life down the road of vehicle ownership is often helpful. If your car is ever totaled, GAP insurance may be just what your finances need.