GAP Coverage for Used Cars: What Are Your Options?

Guaranteed Asset Protection (GAP) coverage is a type of waiver that protects drivers with negative equity. If your car is stolen or totaled while you’re upside down on your auto loan, it covers the difference between your outstanding loan balance and your car’s actual cash value. As a result, it can prevent you from receiving a large bill during an already stressful time. 

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But do you need GAP on a used car? While GAP coverage is commonly recommended for new cars, since vehicles tend to depreciate the most in the first year, used car owners can also end up with negative equity that leaves them financially exposed. If you have a used car and are considering GAP coverage, read on to learn when it can make sense, including during the auto loan refinancing process. 

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Key takeaways

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• If your car is stolen or totaled and you owe more than it's worth, GAP  can cover the difference between your loan balance and the car's actual value.
• You can get GAP coverage from many lenders, insurance companies, individual providers, and auto loan refinance companies like RefiJet. 
• GAP makes sense if you finance or refinance a used car and expect to have negative equity at any point. 
• You may have negative equity on a used car for many reasons, such as if you rolled over debt, made a small down payment, or chose a long loan term. 
• RefiJet makes it easy to get GAP coverage during the refinance process. 

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Understanding GAP coverage

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Auto insurance companies only pay up to a vehicle’s actual cash value in a total loss scenario. Unfortunately, if your car gets stolen or totaled while you owe more than it’s worth, you’ll be responsible for the shortfall. GAP insurance bridges that financial gap by covering the difference between a car’s outstanding loan balance and its value at the time of the loss. 

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For example, if you owe $15,000 on your car loan, but your vehicle is only worth $12,000 when you discover it's stolen. You file a claim with your auto insurance company and eventually receive a settlement check for $12,000. You’ll still be on the hook for the $3,000 difference with your lender. Without GAP insurance, you would pay it out of pocket.

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GAP coverage can be helpful for owners of both new and used cars, as vehicles tend to depreciate by 20% or more in the first year, and up to 60% in the first five years, according to Kelley Blue Book. You can often buy GAP coverage through lenders, dealerships, or stand-alone providers and either roll it into your loan or pay for it on a premium basis. 

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If you refinance an auto loan with GAP, you’ll need to enroll in a new policy because GAP is tied to your loan, not the vehicle. Refijet makes that process easy by offering to bundle GAP coverage into your new loan. You can switch to a new lender and a better deal, without worrying about ever losing your GAP coverage. 

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Can you get GAP coverage on a used car?

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GAP is widely available for used cars. You may be able to add GAP at the time of purchase, during refinancing, or even through your current auto insurer. But is it beneficial for you? 

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Here’s a closer look at the main pros and cons to consider when deciding if you should get GAP coverage for a used car. 

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Benefits

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GAP can provide used car owners with many benefits, including:

• Coverage: If your car gets totaled or stolen and your auto loan balance exceeds your car’s value, gap coverage will cover the difference.
• Deductible coverage: GAP may cover your auto insurance deductible up to a certain amount, such as $1,000. 
• Option to cancel: If you no longer need GAP, you can often cancel the coverage early and get a refund (when applicable).  

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Drawbacks

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While GAP can be helpful, it also comes with a few potential drawbacks, including: 

• Cost: GAP coverage comes with a cost, either as a one-time fee (often rolled into your loan) or an ongoing premium (billed monthly or annually). 
• Eligibility limitations: GAP providers may have eligibility requirements that prevent you from getting coverage for your vehicle.  
• Limited usefulness: GAP is only beneficial if your car’s value is less than your outstanding auto loan balance. 

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Should I buy GAP on a used car?

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GAP on a used car is generally worth it if you’re financing more than the vehicle’s current value. 

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For example, if your loan amount is $25,000 but the car is worth $24,000, GAP could cover that $1,000 difference. However, the gap isn’t always so obvious. Even if you start with little to no negative equity, it can grow over time if your car depreciates faster than you can pay it down. 

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Here’s a closer look at when GAP coverage on a used car is more likely to make sense, and when it might not:

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When GAP coverage on a used car makes sense

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GAP coverage for a used car can make sense, but only if your car’s value is lower than the outstanding balance on your car’s loan. That is more likely to happen when you:

• Make a down payment of 20% or less
• Buy a car that’s less than three years old
• Choose a long loan term (60+ months)
• Get a high interest rate 
• Roll over negative equity from a previous loan

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If you’re refinancing with negative equity, GAP can also make sense because your previous GAP coverage will not transfer over. Learn more about refinancing with GAP coverage. 

When GAP coverage may not make sense

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GAP coverage won’t make sense when you owe close to or less than what your used car is worth because there’s no financial gap to bridge. That can happen when: 

• You make a large down payment
• You choose a shorter loan term (48 months or less)
• The car has held its value well
• You're nearing the end of your loan term 
• You financed the car at or below market value

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Securing GAP coverage with your refinance

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If you’re looking to refinance your vehicle and want to secure GAP coverage, RefiJet can help you on both fronts. To start the process apply to prequalify with our pool of refinance lenders. From there, you can compare quotes side by side to find a competitive deal. Once you find the refinance loan that is the best fit for your situation, you can look into the available GAP insurance options. RefiJet offers coverage from various industry-leading providers, so you may be eligible for several plans. 

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If you’d like help, one of our financial service representatives will show you your GAP options and highlight the key features to look for in a policy. Get started!

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FAQs

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Learn more about GAP on used cars. 

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Why would a car not qualify for GAP insurance?

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A car may not qualify for GAP coverage due to factors like its age, mileage, or modifications. However, eligibility requirements vary by provider, so it’s best to check with your specific provider. 

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How long after you buy a car can you add GAP?

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The amount of time you have to add GAP after you buy a car depends on the provider you choose. Some may allow you to add the coverage any time you have an active lease or auto loan, while others require you to add it within a certain number of days from your purchase date or during the initial loan transaction. 

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Is it ever too late to add GAP?

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Some GAP providers allow you to add GAP coverage anytime, while others have time limits. You’ll have to check with the providers you’re considering. You could also encounter eligibility limitations related to the age or mileage of your vehicle. 

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Can I purchase just GAP by itself?

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You can purchase standalone GAP coverage from various providers. However, keep in mind that it only covers the gap between your auto loan balance and your vehicle’s value at the time of the loss. For full coverage, you’ll also need to carry comprehensive and collision coverage as part of a standard auto policy. 

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