If you are considering a new car, you are most likely looking at reviews, MPG comparisons and insurance quotes. You may also hear about GAP Insurance. Guaranteed Asset Protection Insurance, or GAP insurance, covers the difference between what your car is worth and what is still owed on the vehicle loan. Since a vehicle generally depreciates when it is driven off the lot, you can end up owing more than what the car is worth in the event of a vehicle accident or theft. This is especially true with a new vehicle.
Let’s say your five-month old car is stolen or damaged and replacement or repair costs add up to more than the cars considered worth. At this point, GAP insurance pays the difference between what the collision insurance covers and what you still owe on the vehicle loan. If you did not have gap insurance, you would have to pay that amount in addition to your regular insurance deductible – which could amount to thousands of dollars. When you consider vehicle depreciation, extended loan terms, and rising repair costs, the chance of a “gap” occurring between your remaining loan balance and insurance settlement is likely.
However, if your loan balance is already less than the car’s value, you would not need GAP insurance. You are not considered “upside-down” on your vehicle loan. Perhaps you had a down payment or trade in and/or make larger than your minimum payment to pay off your car sooner. Then, in the event of theft or total loss, comprehensive and collision coverage would provide the coverage you need.
The EEFCU offers GAP insurance and encourages our members to consider this option when investing in a new vehicle. It is a small price to pay to protect your investment and your peace of mind in the event of and accident or theft. Talk with one of our loan officers about whether GAP Insurance is recommended for you.