Gap Insurance
Quick Answer
Insurance covering the difference between a car's value and the loan balance if totaled.
Definition
Insurance covering the difference between a car's value and the loan balance if totaled.
Explanation
Gap (Guaranteed Asset Protection) insurance covers the 'gap' between what you owe on your auto loan and the car's actual cash value if the vehicle is totaled or stolen. Since cars depreciate rapidly, many borrowers owe more than the car's value in the first few years.
Recommended for: loans with less than 20% down, 60+ month terms, and leased vehicles.
Example
You owe $25,000, car is worth $20,000 when totaled. Gap insurance covers the $5,000 difference. Without it, you'd owe $5,000 out of pocket.
Frequently Asked Questions
What is Gap Insurance?
Insurance covering the difference between a car's value and the loan balance if totaled.
How does Gap Insurance work?
Gap (Guaranteed Asset Protection) insurance covers the 'gap' between what you owe on your auto loan and the car's actual cash value if the vehicle is totaled or stolen. Since cars depreciate rapidly, many borrowers owe more than the car's value in the first few years.Recommended for: loans with less than 20% down, 60+ month terms, and leased vehicles.
Can you give an example of Gap Insurance?
You owe $25,000, car is worth $20,000 when totaled. Gap insurance covers the $5,000 difference. Without it, you'd owe $5,000 out of pocket.
Free Excel Templates
Also try our free Mortgage Amortization Schedule template
Create a detailed mortgage amortization schedule. See exactly how much principal and interest you pay each month over the loan term.
Download Mortgage Amortization Schedule