Bridging the GAP (Guaranteed Asset Protection)

When you purchase a new car, most auto lenders typically require comprehensive and collision coverage, but these policies don't take into account the depreciation that can occur as soon as you drive off the lot. Guaranteed Asset Protection, or GAP, can help by bridging the gap between what your vehicle is worth and what you owe on an auto loan, potentially saving you from significant financial loss. 

What is GAP?

Guaranteed Asset Protection, also known as GAP, is an optional loan protection product that covers the difference between your car’s actual cash value (or the current market value of your car, considering depreciation) 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 car 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 car is considered a total loss, the insurance payout is only for the car's actual cash value at the time of the loss. GAP covers 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 car is $19,000, GAP would cover the $6,000 difference.

GAP doesn’t cover late fees, accrued interest, extensions/deferred payments, 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?

GAP is 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-of-pocket expenses. Consider GAP 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 car.
• You made a small down payment, or no down payment at all.
• You financed your car for a longer term (four years or longer).
• The type of car you have depreciates quickly.
• You’re leasing a car.
• You plan to drive your car for a long distance. High mileage speeds up a car’s depreciation value.

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 car is worth more than the loan, GAP is probably not necessary. Also, if you paid cash upfront for your car, GAP isn’t needed since there's no loan.

How do I get GAP?

When you’re in the process of purchasing a new car, there’s a good chance you’ll be offered GAP by the dealership. Credit unions, banks, and insurance companies also offer GAP. The coverages and costs vary with insurers. For instance, some insurers may require loan financing with their institution in order to offer GAP. It would benefit you to shop around and compare plans to find the right one that meets your needs.