Picture the following scenario: After months of research and planning, you take the plunge and buy a new car. Once the financing is secured and your auto insurance is in place, you’re ready to hit the road. You’re so excited about your sparkling new ride that you’re not even worried about the fact that most new cars depreciate by as much as 10% the moment you drive them off the lot—and up to 20% in the first year.
Now, imagine that after just a few weeks, you’re involved in an accident that badly damages, or worse yet, totals your car. (Don’t worry—unlike your car, you emerge from this imaginary situation without a scratch). Fortunately, you did the responsible thing and secured good auto insurance. Once all the proper claims have been filed, you find out that insurance will only cover your car’s market value—which, due to the depreciation, is several thousand dollars less than the amount you actually owe on your auto loan. If only there were a type of loan protection that would help you make up that difference. Fortunately, there is. It’s called Guaranteed Asset Protection—or GAP, for short.
What is GAP?
GAP coverage is an optional protection plan offered with auto loans or leases, and depending on the plan coverage limits, it effectively waives most of, if not all, the remaining balance on your loan. While your auto insurance plan’s comprehensive and collision policies cover your vehicle’s value in the event that it is totaled or stolen, GAP coverage is designed to ensure you don’t get stuck making payments on a car you no longer own.
How do I know if I need GAP coverage?
While the product makes good financial sense for some, not everybody needs to get a GAP policy. According to the financial experts at NerdWallet, there are a few basic guidelines that will help you decide whether GAP coverage is right for you. You should strongly consider adding a GAP policy to your auto loan if you:
- Made a small down payment on a new car, or none at all.
- Agreed to a loan term longer than 48 months.
- Drive a lot, which reduces a car’s value more quickly.
- Lease your car.
- Bought a car that depreciates faster than average.
Where do you get GAP coverage?
While a variety of companies provide GAP coverage for consumers, it often makes the most sense to obtain the protection plan from the same financial institution that will be financing your vehicle purchase in the first place (which is hopefully your local credit union). If you already financed your vehicle through a dealership, keep in mind that many GAP programs are refundable up to a certain number of days. This means that should you decide to refinance your auto loan through a credit union, they may be able to help you get a refund on your original GAP plan and secure a new plan at a lower cost.
Not only are credit union GAP plans traditionally less expensive than those available through finance companies, they can typically only be added to your loan at the time of closing (vehicle age and mileage limits also apply). Securing coverage through the financial institution that services your loan reduces the need to coordinate communication between multiple parties. It also increases the likelihood that you can put a frustrating accident experience behind you sooner rather than later—and that peace of mind is priceless.
If you have questions about Guaranteed Asset Protection or want to know how to add it to your auto loan before you close, contact a financial representative at First Financial. They can help you review your current financing situation and determine whether GAP coverage is right for you.*
*Enrollment in Loan Payment Protection is voluntary and not required to obtain a loan. Loan Payment Protection is a debt cancellation product available through CUNA Mutual Group. Please contact your First Financial loan representative, or refer to your Member Agreement for additional information on benefit maximums, eligibility, and limitations. Certain eligibility requirements, conditions, and exclusions may apply. You may cancel the protection at any time. If you cancel protection within 30 days you will receive a full refund of any fee paid. Loan Payment Protection can only be added on at the time of loan closing and coverage cannot be added to an existing loan.