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ACU Blog  / 5 Reasons Why You May Need Guaranteed Asset Protection (GAP)
18 August 2021 / 3 minute read

5 Reasons Why You May Need Guaranteed Asset Protection (GAP)

Guaranteed Asset Protection (GAP) covers the financial gap between what your car insurance covers and the outstanding amount of your vehicle or car loan.
Words Allegiance Credit Union
18 August 2021
3 minute read
Guaranteed Asset Protection (GAP) protects your new car so you can smile worry free like this woman in sunglasses.

When everyday people make a major purchase, they anticipate comprehensive insurance coverage provides complete financial security. Much to their surprise, this may not be the case.

When everyday people take possession of expensive items such as automobiles, fast-declining values and coverage result in a financial gap. If something goes wrong, a borrower could be on the hook in ways they did not imagine. That’s why an increased number of people are securing Guaranteed Asset Protection (GAP) to fill the financial void.


What is Guaranteed Asset Protection (GAP)

The concept of Guaranteed Asset Protection (GAP) is both simple and elusive to people who take out loans to make major purchases. This type of protection typically pays the difference between the value of an asset and the outstanding loan amount. The term “GAP” highlights precisely what it does for borrowers. It provides additional resources so that people don’t have to reach into their pocket to cover expenses when assets such as automobiles have depreciated, and the loan amount remains higher than their value.

What Does Guaranteed Asset Protection (GAP) Cover

Imagine someone recently received car loan approval and completed all the paperwork. The car dealership receives the funds, the insurance company provides full coverage, and the new owner drives away with that new car smell. Only miles from the car lot, the driver is involved in a wreck, and the vehicle is declared “totaled.” In another scenario, the same new vehicle is stolen within days of the purchase.

It may seem counterintuitive, but the insurance carrier may only approve a claim for the estimated value of the now “used” car. The immediate decline in value results in the owner receiving less money than the sticker price and what they owe on the loan. Guaranteed Asset Protection or GAP coverage makes up the difference between what is owed and the amount the insurance carrier is willing to pay on the claim.

Some local lenders may offer plans that will pay a set amount towards your new auto loan in the event of a total loss or unrecovered theft of a vehicle. Looking into these additional perks will be worth your time and can potentially save you more money in the long run.


Common Reasons You May Need Guaranteed Asset Protection (GAP)

This type of financial safeguard has evolved into a broadly-used type of protection beyond automobile purchases. Community members now routinely secure GAP when taking out loans for boats, jet skis, RVs, ATVs, and travel trailers, among many others. Although the previous examples may seem somewhat extreme and statistically unlikely, wide-reaching reasons persist for people to consider securing GAP. Some of the more subtle reasons to obtain Guaranteed Asset Protection include the following.

  1. You Purchased a Car or Vehicle with Zero-Down: People with good credit scores and histories enjoy increased access to a variety of consumer loans (including car loans and RV Loans) without down payments. If you put zero or little down, the asset is likely to be underwater.

  2. You Opted For Long Repayment Terms: It’s not uncommon for people to negotiate lengthy car loan terms to make repayment more budget-friendly. When ca loans hit the two- or three-year mark, they are often good GAP candidates.

  3. You Lease A Car or Vehicle: Like automobile loans, lease options also place financial responsibility on signatories. Car leaseholders could find themselves paying out of pocket in the event a vehicle is totaled or stolen.

  4. You Own High-End Assets: Expensive automobiles, RVs, and boats, among others, tend to depreciate quickly. After even minimal use, the gap between what an insurance claim would cover and the loan amount could be significant.

  5. Your Vehicle Is Heavily Used: When borrowers employ a significant down payment, they generally reduce the so-called gap. But putting excessive mileage on an automobile or scratching up an ATV from above-average use can dramatically reduce values and widen the gap.

An increased number of borrowers procure GAP in an effort to eliminate unnecessary financial vulnerability. Unfortunately, too many hard-working community members discover — after the fact — they must spend additional money for something they thought was securely covered.

Is Guaranteed Asset Protection (GAP) Right For You?

In a world in which retail outlets barrage consumers with product warranties, you may be unsure if buying GAP coverage is worth the money. The relatively low cost of this protection can result in a windfall of savings.

Consider reviewing your current car loan or RV loan repayment amount against baseline estimates from resources such as the Kelley Blue Book, among others. It may be worthwhile to get in touch with your insurance carrier and understand its top-line claim amount should the asset be totaled or stolen. These factors will help you make an informed decision on whether purchasing Guaranteed Asset Protection (GAP) is the right for you.

Where & When Can You Buy Guaranteed Asset Protection (GAP)

Guaranteed Asset Protection is typically available through your local lender and the cost can be settled as a lump sum payment or rolled into the RV or car loan.

If you are concerned about a financial gap between the value of your vehicle and the outstanding car loan amount, promptly contact your local credit union or community bank for trusted advice and a reliable GAP program you can count on.

If you are in the market for a new vehicle and coverage that protects your bank account similar to Guaranteed Asset Protection (GAP), review our "Car Loans 101: Car Buying Made Easy" complete guide.

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