Often times when people decide to buy a new vehicle they do a little bit of research before going on a test drive.
Normally, that research is based on the vehicle itself like what type of vehicle you are looking at. Car or truck? What color do you like? What features would you like to see your new vehicle come equipped with? That research doesn’t usually include anything that is covered in the finance office, like “Guaranteed Auto Protection” or GAP insurance.
Basically, GAP insurance covers the “gap” between the amount that you owe on your vehicle and the amount that the insurance companies values your vehicle at in the event that your vehicle is a total loss.
For example, let’s say you buy a brand new Chevy for $30,000, with little or no down payment, and 6 months later your Chevy is stolen! The insurance company has placed a total value on your Chevy at $22,000, but you still owe $27,000! This is where the GAP insurance kicks in. GAP insurance will pick up the difference, in this case $5,000! What if you don’t have GAP insurance? That $5,000 comes out of your pocket or you would have to continue making payments on a vehicle that you don’t have!
Who needs GAP insurance? If you meet either of these qualifications, it’s a good idea to budget your monthly payment to include GAP insurance.
- If you are leasing your vehicle and the lease does not include this protection.
- If you are financing with little or no down payment
What about me? Can I skip GAP insurance?
- Did you pay cash for your vehicle? Yes, you can skip GAP insurance.
- Did you put down a sizable down payment? Yes, you can skip GAP insurance.
It is very important to make sure that you fully understand everything that you are signing up for in the finance office. A lender cannot make you sign up for GAP insurance, but they will probably encourage it. If you have questions or need further explanation on any of the programs that the finance manager is offering don’t hesitate to ask for clarification.