You may be wondering, “What is GAP coverage & why do I need it?”

GAP coverage is an add-on product that covers the difference between the value of the vehicle (as determined by an insurance agent) and the balance of the loan if you were to total the vehicle. The fee for GAP coverage can be added to your loan amount.

What happens if your car gets totaled in a collision, or is stolen? Your auto insurance company would pay out a total loss settlement, in the amount of what your car is worth. That is great, but if your loan balance exceeds what your car is worth, you would be liable for the difference. That is where GAP Coverage can help. Simply put, GAP Coverage is additional protection that covers your vehicle’s value between the amount you owe, and the amount the vehicle is worth. Whether or not you should buy GAP Coverage is ultimately up to you, but here are some cases to consider:

If you make a large down payment on your new vehicle, you may be more inclined to pass on this extra coverage. GAP coverage is only designed to cover you in situations where you owe more than the car is worth, and in these cases, you probably won’t.

If you finance your vehicle over a longer term, put zero, or a small amount down, you may want to consider GAP coverage. A car’s value depreciates over time, often faster than you are paying off your loan.  That means you will likely be upside down on your loan for the first couple of years.  Should you total your vehicle, you’ll owe your bank more than the vehicle is worth.