So many people have to buy cars on credit.  They take out a loan and make payments over a number of years until the vehicle is paid off.  But many do not think about what would happen if the car is totaled in a car accident and you are upside down on the vehicle loan.  The insurance company is only required to pay the fair market value of the vehicle which might be less than the balance left on the car note.  That is why you should consider buying gap insurance.  Gap insurance covers the “gap’ between the fair market payout of the vehicle and the loan balance.

Let’s say you buy a car for $20,000 and finance $18,000.  In about a two years, that vehicle might only be worth $12,000; but you might still might have a $14,000 balance on the loan.  If you get into an automobile accident and that vehicle is declared a total loss, then you would be upside down by $2,000 between the car’s value and the loan balance.  Gap insurance covers that difference.

Essentially, gap insurance will pay off the “gap” between the total loss payout and the loan balance.  This will leave you with a zero loan balance on the car loan leaving able to go and purchase another car with a new loan.

I always recommend that people buy gap insurance.  It is not very expensive and will come in quite handy if you need it.

5 Comments

  • Posted December 15, 2021

    Aaron Thornburg

    I have Gap coverage through the financer of a car that was a total loss. Gap coverage needs to kick in over $5,000. My insurance has paid their share of the loss, but I have not been able to get in contact with anybody from the finance company for over 3 months. I have emailed and called dozens of times wit no response. What are my options at this point? Would it be beneficial to hire a lawyer?

    • Posted December 27, 2021

      Robert Slim

      Do you know who the GAP carrier is? If so, file a claim directly with them. Also, look through your paperwork when you bought the car. There should be some reference to who the GAP carrier is.

  • Posted February 26, 2019

    Hooman

    Hello,
    I have a question .. so my car was originally financed through Nissan then I
    Refinanced it through UFCU .. I cancel the gap but
    I find out that the refund isn’t going to me but it will be
    Applied to the closed loan with Nissan. I kept calling
    Them but they kept saying Gap insurance is rebatable
    In state of Texas and they told me that when they sent me the pay off amount
    They were giving me the payoff minus gap money ..
    is there any truth to this statement ?

  • Posted March 20, 2014

    celia fullove

    What if the Gap insurance company refusing to pay? My gap insurance company is ststing that my car was over financed.

    • Posted March 20, 2014

      Robert C. Slim

      It all depends on how your policy reads. Generally speaking, your GAP carrier should have already known all about the financing of your car when you first took out the policy. It doesn’t sound right that they are refusing to pay now on the basis that it was “over-financed.” I would request a copy of your insurance policy and go over it with an attorney.

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