If you’ve been shopping for a car, you may have been offered GAP or at least heard of it, or something similar. At Best Reward we refer to this type of protection as GAP Plus Coverage. You may also be aware of the pros and cons of this type of supplementary coverage. To help you decide if it’s an investment you want to make, we’ve answered some of the most frequently asked questions.
1) What is GAP?
GAP stands for Guaranteed Asset Protection. To understand what it is and how it works, you need to know what happens to a new car’s value when you drive it off the lot.
New cars depreciate. A lot. Within the first year of your new car’s life, it may lose as much as 20% of its value.
This means that when you owe money on a car loan at the beginning of the car’s life, you may be in a situation where you owe more than the car is worth.
Now, if you total the vehicle when you owe more than it’s worth, you are in a tight spot. Insurance will pay out the total value of the vehicle, not the amount that you owe. In this case, GAP covers the difference between what you owe and how much the car is worth, ensuring that you can pay off your loan in full.
2. How Can Guaranteed Asset Protection Help Me?
If you end up in a situation where your vehicle is totaled and you owe more than it’s worth, GAP can make sure that you don’t end up coming up short. This could put you in a bad financial position, in which you owe money on a car loan for a car that is totaled but also must buy a new mode of transportation.
This type of situation is more likely in a few scenarios:
You made a small down payment on the car — the smaller the down payment, the more likely you will be upside-down on your car loan.
You have an exceptionally long loan term.
Your vehicle will depreciate extremely quickly — some car types depreciate faster than others.
3. What Happens If My Car is Totaled?
If your car is totaled, your normal car insurance will pay out the total value of the vehicle. GAP will cover the cost between this amount and the balance on your loan.
If you don’t have GAP, you are liable for any discrepancies between the insurance payout and your loan balance.
4. How Much Does GAP Cost?
The cost of Guaranteed Asset Protection depends on where you get it. It is almost universally true that GAP is more expensive at the dealership than through a financial institution.
In general, GAP typically costs around 5–6% of what you pay for your regular comprehensive auto insurance, making it extremely affordable. At Best Reward, GAP Plus Coverage is less than $400.00.
5. Does GAP Cover Me if I'm at Fault?
GAP will protect you regardless of the type of accident you’re in, as long as your car is deemed totaled by your major insurer.
6. How Long is GAP Good For?
Depending on your specific policy, your GAP may last for a specific term or the entire life of the car loan. Because GAP only helps you in the first part of your car loan, where you owe the most, most policies offer a set length are shorter term, approximately one to two years.
In a case where GAP does not have a set policy term, it is up to you to know how much you owe on the car, how much the car is worth, and whether Guaranteed Asset Protection is still necessary.
7. Can I Get GAP After I Have Purchased My Vehicle?
This depends on the financial institution or company where you are purchasing from. Some require that the coverage be purchased at the time you buy the vehicle, while others are more flexible. At Best Reward, we allow members to get a quote for our GAP Plus Coverage even after they have purchased their vehicle.
We even offer GAP coverage for used vehicles, refinanced vehicles, motorcycles, boats and RVs.
This may be a particularly good thing to look into if you’ve realized that the vehicle you’ve purchased has depreciated more rapidly than you expected.
8. Is GAP Required?
In most cases, GAP is optional. However, depending on where you are getting your car loan, GAP may be required.
Some lenders require GAP as a way to protect not only themselves but also you in the case of an accident.
If you finance your auto loan through Best Reward, we do not require borrowers to secure GAP coverage.
Ready To Learn More About Guaranteed Asset Protection?
If you feel that GAP would cover you from a tough financial situation or you are concerned with being upside down on your car loan, we encourage you to learn more.
Best Reward offers a wealth of information on our GAP Plus Coverage, and can answer your questions about how to obtain coverage. Just click below for more details about our GAP Plus Coverage.
Learn More About GAP Coverage