The following post originally appeared on our RoadLoans blog, The Open Road.
Just about everyone who buys a car from a dealership has experienced it. It’s the hard sell of car amenities at the end of the car-buying process. You are ushered to a room where a dealership employee, probably the finance manager, provides the contract for you to sign, financing your new vehicle. Then there is the checklist of auto add-ons. You can include extended warranty, additional servicing packages and GAP insurance or Guaranteed Asset Protection. What is GAP insurance? It’s one of the ways you protect your pocketbook, should something happen to your car before you finish paying it off.
I will never forget my beloved Honda Accord. The Accord and I lived together in harmony for almost two years, joyously traveling the open road. Then one day, I walked out onto the parking lot after Sunday church service, and couldn’t find it. It was gone, without a trace, disappeared into thin air. So I did what most people do in this situation. I panicked. My insurance company was very sympathetic…initially. I was then told I would be receiving a check for $13,000 to cover my loss. The only problem was I still owed about $15,000 on the car. I would still have to continue paying the monthly car payment to cover that $2,000 difference, despite the fact that I didn’t have a car. If I had GAP insurance, it would have picked up the tab in my situation.
When you drive your car off the lot, in most cases the car’s value has already depreciated below the amount you financed it for–meaning you’re “upside down” on your car. You owe more on the car than it’s worth. So if your car is totaled, either by accident or because it was stolen, your regular insurance will only cover the book value. What is GAP insurance? Well, if there is a remaining balance beyond that, GAP insurance will cover that “gap” so that you don’t have to. Believe me, it’s no fun to need GAP and not have it.
Wondering if you can afford GAP insurance coverage? If you’re financing your vehicle, most companies will roll GAP coverage into your monthly payment. Spread out over the life of your loan, it probably amounts to only a few additional dollars each month. Even if you get pre-approved with online auto lenders like RoadLoans, they allow you to add GAP insurance provided the cost fits into the amount you were approved for.
Still wondering what is GAP insurance? If you have it, keep it. When financed, it’s not terribly expensive. If you don’t, you may want to investigate whether your vehicle is eligible for coverage. While it’s not a necessity, GAP insurance certainly is nice to have in your toolbox if something unravels.