What Is GAP? How Guaranteed Auto Protection Can Save You Thousands
If you’ve ever financed a new vehicle, you may have heard about something called GAP coverage. But what is GAP, and why does it matter?
Like it or not, new vehicles depreciate the moment you drive off the car lot. In fact, most cars lose up to 20% of their value in the first year alone. This rapid depreciation can create a financial “gap” between the amount you still owe on your auto loan and the actual value of your vehicle. That’s where Guaranteed Auto Protection, or GAP, comes in.
What Is GAP and Why Do You Need It?
GAP (Guaranteed Auto Protection) is a type of optional insurance coverage that protects you from having to pay out of pocket if your vehicle is ever stolen or totaled in an accident.
When this happens, your auto insurance company will pay you the actual cash value (ACV) of the car—not what you originally paid for it or what you still owe. Because of depreciation, the insurance payout may not be enough to cover your remaining loan balance.
That difference between what the car is worth and what you owe is the “gap.” GAP coverage pays for that difference, so you’re not stuck with a loan on a vehicle you can no longer drive.
How does GAP Insurance Work: A Real-Life Example
Let’s say you finance a new car for $30,000.
A few years go by and you’ve made all your payments on time, but due to depreciation, your car is now worth $20,000. You still owe $25,000 on your loan, which leaves a $5,000 gap.
Now imagine your car is involved in a serious accident and is deemed a total loss by your insurance provider. Here’s how things would play out:
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Your auto insurance would pay $20,000 (the actual cash value of the car, minus your deductible)
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GAP coverage would pay the remaining $5,000 you owe on the loan
Without GAP, you’d be responsible for paying that $5,000 difference out of your own pocket—even though you no longer have the car.
When Should You Consider GAP Coverage?
GAP insurance isn’t required, but it can be incredibly valuable—especially in situations where you’re more likely to owe more than the car is worth. Here are some common scenarios where GAP protection is a smart choice:
1. You Made a Low Down Payment
If your down payment was less than 20%, you could owe more on your loan than the car’s value as soon as you drive it off the lot. GAP helps protect against this immediate negative equity.
2. You Chose a Longer Loan Term
Longer financing terms (such as 60 months or more) mean it takes longer to build equity in the vehicle. During that time, depreciation may outpace your loan payments—making GAP coverage especially helpful.
3. Your Vehicle Depreciates Quickly
Some makes and models depreciate faster than others. If your vehicle has a high depreciation rate, you’re more likely to end up underwater on your loan. GAP can provide peace of mind in these situations.
4. You Rolled Over Previous Loan Debt
If you rolled negative equity from a previous vehicle into your new loan, you start off already owing more than the car is worth. GAP coverage ensures you’re not left responsible for that remaining debt in the event of a total loss.
What Does GAP Cost?
At Members Trust, GAP coverage is available for a one-time fee of just $335. Even better, we can finance the cost into your auto loan, so you don’t have to pay it all upfront.
Considering the thousands of dollars it could save you in a worst-case scenario, GAP offers a strong return on investment for many car buyers.
Final Thoughts: Protect Your Vehicle Investment
So, what is GAP? In short, it’s financial protection that can save you thousands if the unexpected happens to your vehicle. Whether you’re buying new or refinancing, GAP coverage helps protect you from owing more than your car is worth.
If you’re financing a vehicle through Members Trust, ask us about adding GAP coverage to your loan. Our friendly team can help you determine if it’s the right fit for your budget and your vehicle.
Want to learn more or add GAP to your loan? Contact us today or stop by your nearest branch—we’re here to help.