Mind the GAP: Understanding the Value of GAP Coverage

After months of research and planning, you take the plunge and buy a new car. Financing is secured. Your auto insurance is in place. You’re ready to hit the road.

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—you’re fine, it’s just the car…you know, the one you owe A LOT of money on…)

Now what?
Fortunately, you invested in GAP.
Right?

What is GAP?
GAP, Guaranteed Asset Protection, 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, in many cases, a credit union makes the most sense. 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 also be added to your loan at any time (vehicle age and mileage limits 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 the 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 existing auto loan, contact a financial representative at Stamford Federal Credit Union. They can help you review your current financing situation and determine whether GAP coverage is right for you.