GAP Insurance, also referred to as GAP Waiver or GAP Addendum, is an abbreviation for Guaranteed Asset Protection. In the event your insurance company declares your vehicle a total loss from accident or theft GAP Insurance will pay the difference between the ACV (Actual Cash Value) your insurance company determines they will pay and what is owed to the bank on your vehicle. An easier way to explain this is that GAP Insurance will pay your negative equity (difference between your vehicles ACV and what is owed to the bank) so that you are not responsible to pay the bank, potentially thousands of dollars, on a vehicle you are no longer able to drive. Most GAP Insurance companies will also cover your insurance deductible and may give you additional money to use as a down payment on a new vehicle.
Who requires GAP Insurance?
Who that:
Example of the benefits:
"You've just purchased a brand new vehicle for $30,000 with no money down. With TT & L included you are financing $32,250. You drive your new vehicle off the lot to show to all your family and friends and without you even knowing it, you've just lost 20-30% of the value of your vehicle. That's typical depreciation for the first year of a new vehicle, you can expect another 15-20% in the second year and 10-15% in your third year. So immediately your vehicle is now only worth, let's use the 20% from above, $24,000 and you owe $32,250.
One year after buying your vehicle, using the same figures above, your vehicle is stolen and the insurance company has given up on finding it and declares it a total loss. You've been able to pay down your loan to $31,000, but it's only worth $24,000, which leaves you with a $7,000 GAP plus your deductible, let's say $500. The total amount that you are now required to pay the bank and your insurance company is $7,500. That's right you have to come out of pocket to pay a balance on a vehicle you can't even drive anymore. OUCH!
What happens if you can't pay, or even refuse to pay? Eventually the bank will send your account to collections and then the account will eventually be charged off. What does this look like to future lenders? It will show as a charged off auto loan and will look as bad as a repossession on your credit.
Be sure to check with your insurance company and know what they will and will not cover. If you assume your covered, when you are not, and the worst happens, you are going to be in for a rude awakening."
GAP Insurance should be available at most any car dealership throughout the country.
Who requires GAP Insurance?
Who that:
- Has put less than 20-30% down.
- Is financing for more than 36 months.
- Is rolling over negative equity from a trade in.
- Is buying a new vehicle, especially a truck of SUV, due to a huge immediate depreciation.
- Drives over 12,000 miles per year. Due to accelerated depreciation.
Example of the benefits:
"You've just purchased a brand new vehicle for $30,000 with no money down. With TT & L included you are financing $32,250. You drive your new vehicle off the lot to show to all your family and friends and without you even knowing it, you've just lost 20-30% of the value of your vehicle. That's typical depreciation for the first year of a new vehicle, you can expect another 15-20% in the second year and 10-15% in your third year. So immediately your vehicle is now only worth, let's use the 20% from above, $24,000 and you owe $32,250.
One year after buying your vehicle, using the same figures above, your vehicle is stolen and the insurance company has given up on finding it and declares it a total loss. You've been able to pay down your loan to $31,000, but it's only worth $24,000, which leaves you with a $7,000 GAP plus your deductible, let's say $500. The total amount that you are now required to pay the bank and your insurance company is $7,500. That's right you have to come out of pocket to pay a balance on a vehicle you can't even drive anymore. OUCH!
What happens if you can't pay, or even refuse to pay? Eventually the bank will send your account to collections and then the account will eventually be charged off. What does this look like to future lenders? It will show as a charged off auto loan and will look as bad as a repossession on your credit.
Be sure to check with your insurance company and know what they will and will not cover. If you assume your covered, when you are not, and the worst happens, you are going to be in for a rude awakening."
GAP Insurance should be available at most any car dealership throughout the country.
