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FAQ: What is GAP insurance and do I need it?

Posted by Gabby Boyce on Jun 8, 2016 1:34:14 PM

If you have ever leased a vehicle or taken out an auto loan, chances are you have been offered Guaranteed Auto Protection (GAP). 

If you have an accident while you are still paying off your auto loan, the primary insurance for your vehicle will pay you the current market value of your vehicle, but not the total amount you may still owe to the credit union, bank, or dealership that financed your loan. All vehicles depreciate over time, especially if you put a lot of miles on the car.

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GAP insurance is a must if you are leasing a vehicle. However, if you make a small down payment when you buy a car, you might also need a GAP policy. That's because car depreciation sometimes outpaces your car payments. For example, if you bought your car for $15,000 and put no money down, the car might be worth only $11,000 a year later, even though you still owe $14,000 on the loan. If an accident totals your car, you will be responsible for paying the $3,000 difference, unless you have GAP insurance.

“GAP helps protect the borrower from an unforeseen accident that might end up in a total loss, it makes sure Members are protected over any deficiency in the loan’s balance. With GAP, if a vehicle ends up being a total loss due to an accident, you are free to shop for another vehicle without having to worry about the old loan being paid off,” says James Medina, Financial Center Manager at FFCU.


“If you have a collision in the first two years of the loan, our GAP also covers the deductible up to $500. This option is another way to protect our Members if they did not originally put money down on the vehicle,” Medina added.

Car dealers traditionally sell GAP insurance in the finance and insurance office as the sales contract is being prepared. Dealers typically charge $600 for GAP insurance, though the cost generally grows to a total of $800 over time once you figure the interest that's charged.1

FFCU offers GAP insurance as a one time payment of $379 and it provides coverage for the entire term of the loan.  If you already have an auto loan, you can add GAP insurance at any time. 

For more details, speak with a member of our team about GAP, or any other insurance options. Click the button below to make an appointment or call us at 773-565-2000.

 

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1 https://www.edmunds.com/car-loan/gap-insurance-how-it-impacts-your-car-loan-or-lease.html 

Gabby Boyce

Written by Gabby Boyce

Topics: Borrowing Advice & How to Build Credit