GAP Insurance – When buying a new or used car is it really necessary?
Purchasing a new or used car is something we all likely plan to do in our lifetime, but it could be the little things we find unnecessary to add to the loan that leave us wishing we had made different choices. Guaranteed Auto Protection (GAP) is insurance that covers the difference between the actual cash value of a vehicle and the balance still owed if you ever were to suffer a total loss. For example, if you are financing for 60 months or more, have a high interest rate, or are putting down little to no money, GAP insurance is HIGHLY recommended.
Purchasing GAP insurance could save you thousands in the event you’re ever in an accident or your car is stolen. GAP coverage is relatively cheap when purchased at your credit union, but can be expensive at a dealership (up to $900 or more). In the event of a total loss while you still owe a significant amount on the car, GAP coverage will prevent you from continuing to pay on a car you no longer even own!
Here is how it works:
- Purchase GAP insurance when you finance your vehicle.
- In the event that you’re in an accident and your insurance provider deems your vehicle a total loss, make them aware you have GAP insurance.
- Your insurance company will have a claims adjuster assess your vehicle to determine the value. If you owe more than they say it’s worth, you’re responsible for the remaining balance – unless you have GAP insurance.
- You’ll need to notify your finance company that your vehicle has been deemed a total loss and they’ll work with the GAP insurance provider to cover the remaining balance on your loan.
- GAP does not cover any add-ons to the loan, like extended warranty or payment protection. It also will not cover any late fees or missed payments.
When you purchase a new vehicle, it’s important to remember that it depreciates the moment you drive it off the lot. By purchasing GAP insurance, you help eliminate a possible out-of-pocket burden and create peace of mind. The next time you’re in the market for a vehicle, consider your risk by not purchasing GAP. Your credit rating and your wallet will thank you.