Why do I need GAP coverage?
If your car is totaled, your car insurance plan will typically pay replacement value. And while it sounds great, you might find that you owe more on your vehicle loan than the actual value of the car.
The situation isn’t as uncommon as you might think. A new car loses value the minute you drive it off the lot, and if you’ve made a small down payment or have a long loan term, there could be a sizable difference between your car’s value and the remaining balance on your vehicle loan. While you may wind up with enough cash to replace your car with an equivalent vehicle, you could still be stuck paying off the loan on a vehicle that doesn’t exist.
That’s where GAP coverage comes in. It pays the difference between what your insurance agency will give you for your car and what you owe on your car. Meaning, your GAP protection can help you avoid paying off the remaining difference on your vehicle loan for a car you don’t have. And while the car dealership may encourage you to buy GAP coverage for a hefty price, you can usually find it at a reasonable cost if you shop around.