What's the Benefit of GAP Insurance?
Getting a new car can be a great experience. Whether it’s your first car or the one of your dreams, getting behind the wheel and smelling that “new car smell” is usually a fun and exhilarating experience. But what happens if you have an accident two weeks later and you find out your car is totaled? Unfortunately, the car you paid $35,000 for may only be worth $28,000 to the insurance company in what is referred to as auto depreciation. So, where does the rest of the money come from to pay off the loan? You guessed it – out of your pocket!
Auto depreciation can cause a lot of stress for people as they try to decide where they will find the rest of the money to payoff the loan. However, Guaranteed Auto Protection, or what is commonly known as GAP Insurance, will cover the difference between the value of your car (as determined by insurance company) due to loss from an accident or theft and the amount still owed on the loan.
The primary benefit of choosing GAP insurance is that you are essentially “off the hook” if there is a difference between the value an insurance company places on your car and the outstanding loan amount. While in many cases that difference may be small or even non-existent, the difference could actually be quite high. Without GAP insurance you may be left paying for a car you no longer use. GAP insurance is most important for those who purchase or lease a car with little or no money down primarily because new autos typically depreciate rapidly within the first years of use.
The cost of GAP insurance varies depending on terms. It is typically added to the loan or lease amount and averaged into the monthly payment.