Protecting Your Investment by Filling the “GAP”

If you’ve gotten a loan for a car or truck, you’ve probably heard of GAP insurance…maybe you’ve even purchased it. But exactly what is it and why is it important?

GAP stands for “Guaranteed Auto Protection.” GAP insurance is appropriate for almost any auto loan but is most important in situations with:

• Low or no down payment;
• A loan term of 60 months or longer;
• A vehicle anticipated to accumulate above-average miles (higher mileage increases the rate of depreciation);
• Negative equity from a trade-in vehicle.

GAP insurance covers the difference between the actual cash value of a vehicle (as determined by your insurance provider) and the balance still owed on the loan. GAP insurance is usually purchased up front, and can be financed as part of the loan.

Here’s an example of how GAP insurance works. Let’s say you bought a new car for $30,000. You made a down payment of $2,000 and financed the remaining $28,000 with an auto loan, for 60 months.

Re-paying the loan over five years means your monthly payments are relatively low — but those payments don’t keep up with the continual depreciation in the value of your car.

So for most of those 60 months, your loan balance (the total amount you owe) is greater than the value of your car. During that time, if you have an accident and total the car, or the car is stolen, your insurance (or the at-fault party’s insurance) will only pay the replacement value of the car, not what you still owe on your loan. The difference is called the “gap” — which you will be responsible for, and could equal thousands of dollars.

At Cinfed, we offer GAP insurance in conjunction with our auto loans. Our GAP coverage includes a deductible reimbursement even if the vehicle is not totaled, which means the personal deductible on the car insurance can be raised — saving members additional money.

Our GAP policies cover any autos in the home that are titled in the member’s name, and includes the deductible reimbursement benefit. It’s an outstanding value for members who use Cinfed for their auto loans.

GAP insurance can be well worth the investment to avoid costing you a lot of money in the event your car is totaled or stolen before it’s paid for. Ultimately, it gives you peace of mind for the length of your auto loan.