Whether it is your fault or not, in most cases you’re left with a balance on a loan but no vehicle. This happens fairly often to a lot of consumers, and in some cases it ends up really hurting their credit and putting them into even more debt. To prevent this happening to consumers, dealerships offer a protection called GAP insurance. If you are familiar with new car insurance through your local insurance broker, it is very similar EXCEPT new car insurance only protects vehicles that are less than two years old. Where GAP insurance is different is that it is available for any vehicle for the entire term of your car loan.
Let’s say you buy a vehicle for $23,000.00. The replacement value of the vehicle with current kms may be $18,000.00, meaning you paid $3,000.00 in taxes and $2,000.00 in extra products. So, right off the lot you have actually paid $5000.00 more than what the vehicle is really worth. This means that if your car is written off, you would be left with a loan of $5000.00 and no vehicle to drive. That could be like 2 YEARS of payments on a non-existent vehicle!
However, With GAP insurance, if you bought the vehicle for $23,000.00 and your insurance agent only gave you $18,000.00, GAP will pay out the remaining $5,000.00 of the loan so you are left with a balance of $0.00.
So, in conclusion GAP insurance ensures that in the event of your vehicle being deemed a total loss regardless of fault, the remaining balance of your loan will be paid out, and you won’t be left with any extra debt!