When financing or leasing a vehicle, you may think you are completely covered through the full coverage insurance policy the lien holder will require you to have. The truth of the matter is, however, you are not. You may need to have GAP coverage as well.
"GAP" stands for Guaranteed Auto Protection. In the event that your vehicle is stolen or totaled in an accident, a regular, full-coverage policy will only cover the current market value of the vehicle. This means you could still owe thousands on a car you can no longer drive.
GAP insurance covers the difference between the fair market value of the car and the remaining loan balance.
Why You Need GAP Coverage Car Insurance
The value of a car depreciates over time, and brand new cars lose almost a quarter of their value in the first year of ownership. For example, the car you paid $15,000 for will only be worth around $11,000 after one year, with the value dropping about 10 per cent more each year after that.
Without the additional GAP protection, there is potential to still owe money to the lender even after your insurance company has paid out the claim on the vehicle.
If you are able to apply a down payment of 20 per cent towards your car purchase, chances are that the additional insurance will not be necessary. However, if you bought or are considering buying a car with little to no money down, purchasing this additional coverage is recommended.
Even if you are only leasing a car, GAP coverage is still important. The lessor will still require you to have full insurance coverage on the vehicle. In most cases, a lease contract will have the GAP coverage included in it. Check your agreement for more details.
Also, be aware that you do not need to purchase GAP coverage when you finalize the deal on the car. While it can be obtained from the dealership at the time of purchase, you can also buy the coverage from an insurance company either beforehand or afterwards.
In the event of an early payoff and if the coverage was rolled into your loan payment, you may be entitled to a refund of the unused portion of the coverage. Check with your loan provider for full details on a GAP coverage refund.
Buying a car is a big investment, and you should protect yourself from paying for something you don't have anymore.
We Can Help
If you're preparing to buy a car, but have blemishes on your credit and are having trouble finding a dealer that can help you get approved, Canada Auto Loan is here to find you the dealer that can. All you need to do is complete the fast, simple and secure online application, and we will connect you with the dealer nearest your local area that can help.