Get Started
Talk to our team to start saving 800.260.5355
Guaranteed Asset Protection (GAP) coverage is a type of insurance or 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.
But do you need GAP insurance on a used car? While GAP insurance 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.
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.
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.
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.
If you refinance an auto loan with GAP insurance, 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.
GAP insurance 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?
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.
GAP insurance can provide used car owners with many benefits, including:
While GAP insurance can be helpful, it also comes with a few potential drawbacks, including:
GAP insurance on a used car is generally worth it if you’re financing more than the vehicle’s current value.
For example, if your loan amount is $25,000 but the car is worth $24,000, GAP insurance 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.
Here’s a closer look at when GAP coverage on a used car is more likely to make sense, and when it might not:
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:
If you’re refinancing with negative equity, GAP insurance can also make sense because your previous GAP coverage will not transfer over. Learn more about refinancing with GAP insurance protection.
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:
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.
If you’d like help, one of our financial service representatives will show you your GAP insurance options and highlight the key features to look for in a policy. Get started!
Learn more about GAP insurance on used cars.
A car may not qualify for GAP insurance 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.
The amount of time you have to add GAP insurance 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.
Some GAP insurance 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.
You can purchase standalone GAP insurance 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.
GAP insurance isn't just for new cars, it also covers select used vehicles. Find out if your used vehicle qualifies and how to protect your investment.
