Bridging the GAP (Guaranteed Auto Protection)
Wednesday, October 21, 2020
Read Time: 3 mins
Let’s play the “what if” game. Say you purchased a new car. You’ve been enjoying all the luxuries of your new ride – the latest smart features, fresh car smell, smooth ride, and all the compliments you’re getting on your new car. What if someone ran into you from behind only two weeks after you purchased the car? Now your car is totaled, and you’re shocked to learn that your insurance company will only pay the actual cash value of your vehicle. You’re stuck paying the remaining balance on your auto loan, which could impact your finances significantly. What if there’s a way to bridge this gap? Well, there is with GAP.
What is GAP?
Guaranteed Auto Protection, also known as GAP, is an optional loan protection product that covers the difference between your vehicle’s actual cash value and the amount you owe on the auto loan if your car is stolen or totaled in an accident.
How Does It Work?
The moment you drive off the sales lot, your vehicle depreciates in value, while the amount you owe on your loan only decreases as you make your loan payments. This is where GAP comes in. GAP is an added protection that covers you if there’s a shortfall with your total loss claim. If your vehicle is considered a total loss, the insurance company only pays the vehicle’s actual cash value at the time of the loss. GAP protection closes the GAP by covering the difference between what your insurance company pays towards your claim and your outstanding loan balance. For instance, if you owe $25,000 on your loan and your insurance company decides the actual cash value of your vehicle is $19,000, GAP would cover the $6,000 difference.
GAP doesn’t cover late charges/fees, accrued interest, extensions/deferrals, refundable service warranty contracts, and other related costs. Also, most GAP plans may cover your insurance policy's deductible up to a certain amount.
Is GAP Worth It?
It’s like insurance. You may feel it's not really needed, but you're happy to have it if something happens. Before you purchase GAP, review your auto loan to determine if you owe more on the loan than the car's actual value. If you owe more on the loan, this protection plan could save you thousands of dollars in out-pocket expenses. Consider GAP coverage if any of the following situations apply to you.
- You have limited or no financial means to pay the loan balance after the total loss claim is settled.
- You are “upside-down” or have negative equity in your vehicle.
- You made a small down payment or no down payment at all.
- You financed your vehicle for a longer-term (four years or longer).
- If your particular vehicle depreciates quickly.
- You’re leasing a vehicle.
- You plan to drive your car for a long distance. High mileage speeds up a car’s depreciation value.
However, there are certain situations when GAP isn’t necessary. For instance, if you made a sizeable down payment or paid down your loan to where the vehicle is worth more than the loan, GAP may not be necessary. Also, if you paid cash upfront for your car, GAP isn’t needed.
How to Get GAP?
When you’re in the process of purchasing a new car, there’s a good chance you’ll be offered GAP. GAP is typically offered by car dealerships who are trying to sell you on their plan. But, did you know credit unions, banks, and insurance companies also offer GAP protection? GAP coverages and costs vary with insurers. For instance, some insurers may require loan financing with their institution in order to offer GAP protection. It pays to shop around and compare plans to find the right one that meets your needs.
GAP, an optional layer of protection, could save you thousands of dollars if your car is totaled, and you’re left with paying off the auto loan. Don’t get stuck in a situation like this. Bridge the gap with protection that will give you peace of mind.