Guaranteed Asset Protection (GAP) coverage bridges the financial gap between the actual cash value of a vehicle and the outstanding loan balance in the event of a total loss. For example, if a newly purchased car is totaled and the insurance settlement only covers 80% of the loan, GAP insurance would cover the remaining 20%. The typical monthly cost varies based on factors like the vehicle’s loan amount, the lender, and the specific insurance provider, ranging from a few dollars to around $10 a month, often added to the auto loan payment.
This type of coverage offers significant financial security, particularly for new car buyers. Vehicles depreciate quickly, and in the early years of a loan, the outstanding balance can often exceed the market value. Without this protection, borrowers could find themselves responsible for thousands of dollars despite having comprehensive and collision insurance. Historically, this need arose as car loan terms lengthened and vehicle prices increased, making the risk of negative equity more prevalent.
