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If you’re in an accident and your car is totaled, do you know how much you’d receive from your insurance company? If the car is financed, the insurance payout might not be enough to pay off your car loan. In that case, you’d be responsible for paying the remaining balance even if you no longer have a working car.
A GAP waiver addendum is contract language that releases you from owing that difference out-of-pocket. You can add it when you buy a car or refinance an auto loan. Learn more about GAP waivers, how they differ from GAP insurance, and what they do and do not cover.
A GAP waiver, or guaranteed asset protection waiver, is a feature you can add to your car loan contract. It covers the difference between the car’s actual cash value (ACV) and the remaining loan balance if the car is totaled or stolen. Without it, you’d be on the hook for paying that difference.
Because cars typically lose a portion of their value over time, even a new car may be worth less than what you owe to the lender, especially as months go by. Lenders offer GAP waivers to provide peace of mind to buyers, as well as affordable protection against this depreciation.
You can buy GAP for a motorcycle loan, car loan, or truck loan. GAP waivers are available for new and used vehicles as well as refinanced loans.
Although they sound similar, a GAP waiver is a little different from GAP insurance. “GAP waiver” means the contract-based protection you buy from the lender financing your car. GAP insurance, on the other hand, is a type of insurance policy you buy from an insurance company.
With a GAP waiver, you pay the cost up front or in monthly installments rolled into your loan. Coverage lasts as long as you have the loan, and usually you can only cancel it by paying off the loan or selling the car.
When you buy GAP insurance, you pay premiums for the coverage. Miss a payment, and your coverage could be canceled. Unlike GAP waivers, GAP insurance policies are state regulated. You can buy them from any insurer that offers them. If you cancel your policy, you can usually get a GAP insurance refund for the portion of your premium you didn’t use.
If your vehicle is totaled or stolen, the GAP waiver protects you from owing more than the car is worth. Typically, how it works is you purchase the gap waiver addendum when you take out the car loan. That protection stays in effect while you make your car payments.
Then, if something serious happens to your car, you’d file a claim with your car insurance. If the insurer decides the vehicle is a total loss, you can bring that documentation, including proof of payment, to your lender to activate the GAP waiver.
The GAP provider may allow you to submit your documentation online, which makes the process simple. In other cases, the lender may take care of it for you. You may also need to submit other documents, such as proof of sale, a copy of the loan agreement, and a loan payoff statement, too.
Suppose you bought a new car with a $30,000 loan. You added a GAP waiver, just in case.
A year later, someone crashes into you, and your car is a total loss. You still owe $25,000 on the loan, but the vehicle’s actual cash value is $23,000.
Without a GAP waiver, you’d owe the $2,000 difference to your lender. But since you purchased that protection, the $2,000 is waived.
GAP waivers contain specific details including the maximum LTV ratio, or the loan amount compared the vehicle value, which usually can’t exceed 150%. The waiver applies regardless of the specifics of the theft or accident, per the details of your waiver agreement.
If you have a GAP waiver on your vehicle loan, you can expect:
GAP waivers also spell out exclusions, or what is not covered by the agreement. A GAP waiver typically won’t cover certain costs or circumstances, like:
It’s very important to read the fine print of your GAP waiver contract so you know what to expect and what your agreement will and won’t cover.
If you’re on the fence about adding a GAP waiver to your auto loan, consider whether any of the following situations apply to you. If so, a GAP waiver usually makes sense.
Auto refinancing with GAP coverage means you’re protected financially if something happens that totals your vehicle.
Although you can’t add a GAP waiver to an existing loan, you can add this coverage by refinancing your current loan. Refinancing is a popular strategy for people who want to lower their monthly payments to better fit their budget. If your credit score has gone up since you first took out your auto loan, you might even qualify for better terms. And if interest rates drop, refinancing lets you take advantage of lower rates, which can save you money.
Adding a GAP waiver during the auto refinancing process is simple when you use RefiJet. We can bundle GAP coverage into your new loan so you’re protected, with one monthly payment.
Explore our auto refinance calculator to see your potential savings.
Below are some of the most commonly asked questions about GAP waivers.
A GAP waiver is an add-on to your lender agreement that waives your responsibility for the difference between your vehicle’s actual cash value and the amount left on your loan if the car is stolen or totaled.
A GAP waiver is legal language that cancels a debt, and it’s an addendum to your loan agreement. GAP insurance is an insurance policy you can purchase that pays the difference for you if your car is totaled.
You can check your auto loan agreement for a section on “guaranteed asset protection,” which is what GAP stands for. It should be in your loan agreement or lease paperwork. You can also check with the dealer if you have questions.
A GAP waiver addendum is an addition to your loan contract that states some or all of the debt will be cancelled if your car is totaled and the payout doesn’t cover the remaining balance.
A GAP waiver may be worth it even if you have full coverage auto insurance. Full coverage insurance covers damage to your car from accidents, fire, and storms, but it won’t cover the gap between what your car is worth and what you owe. That’s where the GAP waiver comes in.
Find out how to refinance a car loan, from checking your credit to signing new paperwork. Learn when it makes sense and how to avoid common mistakes.
