What is GAP Insurance?
Guaranteed Asset Protection (GAP) is an optional coverage that bridges the gap between your car's actual cash value and the remaining amount on your auto loan. It's designed to protect you from financial loss if your vehicle is stolen, declared a total loss due to an accident, or damaged beyond repair.
Understanding the Gap
As soon as you drive your new car off the dealership lot, its value begins to depreciate. In the unfortunate event of an accident or theft, your insurance company will reimburse you based on the car's actual cash value at the time of the incident. However, this value is often lower than the outstanding balance on your loan, resulting in a "gap" or shortfall.
How GAP Works:
GAP serves as a safety net, covering the difference between the depreciated value of your car and the remaining loan balance. It ensures that you won't be stuck paying for a vehicle that you no longer possess or that no longer functions. This coverage can be especially beneficial for those who have a large loan balance, financed a vehicle with little to no down payment, or opted for a longer-term loan.
Key Benefits of GAP
- Protection against Financial Loss: GAP provides peace of mind by protecting you from the burden of paying off a loan for a vehicle you no longer own. It helps ensure that you won't face significant out-of-pocket expenses in the event of a total loss.
- No Effect on Credit Score: If you find yourself unable to pay off the remaining loan balance after an incident, defaulting on your auto loan could have a severe impact on your credit score. GAP eliminates this worry by covering the shortfall and preventing credit issues.
- Cost-Effective Coverage: The cost of GAP is generally affordable and can often be included in your monthly auto loan payments. The small investment upfront can save you from significant financial hardship in the future.
- Peace of Mind: Knowing that you are protected by GAP allows you to enjoy your new vehicle without worrying about potential financial pitfalls. It adds an extra layer of security to your investment.
Purchasing a new vehicle is an exciting and significant financial decision. However, it's crucial to be proactive in protecting your investment. By understanding the potential gap between your car's value and what you owe on it, you can make an informed decision about purchasing GAP. At Coosa Valley Credit Union, we understand the importance of safeguarding your financial well-being. Speak to our knowledgeable representatives to learn more about how GAP can provide you with peace of mind and protect your investment for years to come.