← Back to Glossary
Gap Insurance
Definition
Insurance covering the difference between a car's value and the loan balance if totaled.
Explanation
Gap (Guaranteed Asset Protection) insurance covers the 'gap' between what you owe on your auto loan and the car's actual cash value if the vehicle is totaled or stolen. Since cars depreciate rapidly, many borrowers owe more than the car's value in the first few years.
Recommended for: loans with less than 20% down, 60+ month terms, and leased vehicles.
Example
You owe $25,000, car is worth $20,000 when totaled. Gap insurance covers the $5,000 difference. Without it, you'd owe $5,000 out of pocket.