If you’re in the market for a new/used vehicle, don’t forget to check with your credit union first for their GAP insurance price to save some money. Your credit union most likely sells GAP for a much lower cost than you will be charged at the dealership.
Not only will GAP be cheaper, but oftentimes your credit union will offer a rate discount on your auto loan if you take GAP insurance as well. You’re about to make a major purchase, so try to save in every way possible.
What Is GAP Insurance?
GAP coverage is a type of insurance product for your vehicle loan. It stands for Guaranteed Asset Protection. It’s a one-time purchase, ranging from $200-$500 from a credit union; higher if from a dealer.
If your car is totaled in an accident/act of God /stolen, GAP insurance will pay the difference between what your auto insurance will pay and what you still owe on your loan. Hence the name GAP–it covers the “gap” that can be left when your car is totaled.
No, your auto insurance doesn’t pay off what you owe on your loan; instead, it pays the value of your vehicle.
Here’s How GAP Works
If your car is totaled and you don’t have GAP, but you still owe money after your auto insurance pays out your settlement-you could be left owing thousands of dollars on your loan.
This is highly likely if you didn’t put down a substantial down payment when you bought your vehicle. Typically, that down payment amount is around 20%; otherwise, you will generally owe more than the value of your auto.
That’s where GAP comes in; it covers that “gap” between the two dollar amounts. It doesn’t cover your everyday costs and coverage like your comprehensive and collision coverage from your car insurance company.
Here’s a common scenario: Your car is totaled, and the insurance company says your vehicle is worth $4,000.
Your vehicle loan payoff balance is $6300
$6300 (loan balance)
-$4000 (insurance payout)
$2300 balance remaining on the loan that you still owe. Ouch!
That loan balance doesn’t automatically go away just because your car was totaled. So, you either pay the loan off in one lump sum or continue making monthly payments until it’s paid off.
Now what are you supposed to do? You still need to get another car, which means another car loan, right?
Right
So, now you have two car loans with two car payments. If you had GAP on that loan, it would pay off that remaining $2300.
You don’t always need GAP coverage, however. One example would be if you took out a loan for less than what your car is worth. In that case, if your vehicle was totaled, chances are, the payout you receive from your insurance company will most likely be enough to pay off your loan. You could save yourself the expense of GAP coverage in that scenario.
Seek Out Your Credit Union for GAP Insurance
Call your local credit union to find out about their GAP price. Ask them about any possible rate discounts they offer for adding GAP to your new loan with them. You usually have the option of either including the cost of GAP in the balance of your loan (if you buy it when you are getting the loan), or you can pay for it separately.
Be prepared before you go-it will help save you money! By already knowing what your credit union charges for GAP, that’s one less thing you have to worry about when you start searching for your next vehicle.
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