June 1, 2017 by Space Coast Credit Union
To explain gap insurance for auto loans, we’ll share a common scenario. You do everything right. You have appropriate amounts of auto insurance and you drive carefully. Yet, you still end up in an accident, one in which your vehicle is significantly damaged. The insurance company determines that your car is damaged beyond repair, commonly known as “totaled,” and you are given a payout amount. Unfortunately, the amount that you were given is less than the amount still owed on your auto loan. This is known as a negative equity situation; you might also hear it called being “upside down” on a loan. No matter what you call it, it’s a frustrating situation to be in.
This is a scenario in which guaranteed asset protection (GAP, for short) can be a real lifesaver. A GAP policy will ensure that you will receive the difference between the outstanding balance on your loan and your auto’s actual cash value (ACV); the latter is what your insurance company typically pays out if your vehicle is totaled. GAP also kicks in if your car is stolen and not recovered. Note that the ACV is not the same as the vehicle’s original price. Also note that deductibles still apply.
GAP Insurance for Auto Loans: When It’s Important
This type of insurance is especially important if you haven’t made a large down payment on your auto. The reality is that the value of a vehicle can drop as soon as you drive it home; this is known as depreciation. You could, for example, pay $25,000 for an auto, with payments of $400 per month. Two months later, the depreciated value of the auto could be $22,000, but you still owe thousands more than that. The difference between $22,000 and the balance of your loan is the gap that needs to be covered.
So, unless you’ve paid a large down payment, it isn’t unusual to owe more on your loan than the auto is worth, which can cause problems for you if your car is stolen or totaled in a crash. Note that GAP coverage does not cover property damage outside of your vehicle or any bodily injuries.
GAP Coverage at SCCU
Fortunately, GAP coverage is inexpensive, and – if you finance your vehicle at SCCU – can be financed into the cost of your loan.
SCCU is the credit union of choice on Florida’s east coast, with 58 branches from Flagler to Miami-Dade counties. Benefits of choosing SCCU for your auto loan include a fast and easy pre-approval process so you know how much car you can afford before you go shopping, low credit union rates for new and used vehicles, and more. Find more information about pre-approved auto loans at SCCU here