GAP Waiver vs. GAP Insurance: What’s the Difference?
Guaranteed. Asset. Protection. Three little words, all great on their own. But when you add them up all together you get Guaranteed Asset Protection, or, GAP. GAP Waivers and GAP Insurance are additional coverage you can apply to your auto loan that has the potential to save you thousands of dollars in the event of an accident. Save? Thousands? Add those to the list of words we love to hear.
But what’s the difference between the two?
WHAT IS A GAP WAIVER?
A GAP Waiver is additional coverage you apply to your new or refinanced auto loan that protects you from potential financial catastrophe if something happens to your car — like theft or a total loss due to an accident.
The GAP Waiver is an option available to borrowers directly from their lenders and is typically built into your loan and loan payment. Best of all? It costs as little as 45 cents per day — or about $14 per month.
Here’s how it works:
Say you purchase a car for $25,000 and then are in an accident that totals your vehicle. Let’s assume that at the time of the accident your loan is at a $22,000 balance, but the actual cash value (ACV) on your car is only due to depreciation (a word we will not be adding to our list of words we love to hear).
Your insurance company will only cut you a check for the $18,000 ACV of your car — not the $22,000 you still owe on the loan. What does this mean? This means that you’re on the hook for the $4,000 that remains on your balance and possibly more due to interest and other fees. Even scarier? Many lenders will require that $4000+ payment to be made in full almost immediately after your insurance company pays the ACV of $18,000.
With a GAP Waiver, you are covered against that “gap” between your vehicle’s ACV and what you owe on your loan. With this financial protection, you can pay off your loan quickly and easily, then move on to purchasing your new ride and getting back on the road.
WHAT IS GAP INSURANCE?
GAP Insurance essentially does the same thing that a GAP Waiver when it comes to financial protection, but instead of being a part of your auto loan contract through your lender, GAP Insurance must be purchased privately from a separate licensed provider — and could come with a higher price tag.
IS GAP PROTECTION NECESSARY?
A GAP Waiver is not a requirement for an auto loan, but based on the low cost per month, it is potentially invaluable.
We all know that a car begins to depreciate the moment you drive it off the lot — the depreciation rate is even faster for older, used vehicles — and you never know when an accident is going to happen. With the protection of a GAP Waiver, you can rest easier knowing that you are covered financially in the event of an unforeseen occurrence.
Thankfully, many of the credit unions and other lenders that iLendingDIRECT works with for auto refinance offer GAP Waivers as a part of their contracts with no additional cash out of pocket.
WAIT. AUTO REFINANCE? SHOULD I CONSIDER THAT TOO?
Yes! Maybe interest rates have dropped since you opened your loan, or the rates weren’t very competitive due to your financial circumstances at the time. Whatever the reason, iLendingDIRECT wants to help lower your interest rate and/or monthly payment through auto refinance. In fact, our customers save an average of $144 every month and $2,753 over the life of their auto loan. Plus, if you don’t currently have GAP protection, you can get a GAP Waiver applied to your refinanced loan. Two birds, one stone.
To learn more about GAP Waivers or to find out how you can start the refinancing process, give us a call at (866) 683-5505 to speak to one of our highly trained loan consultants. Or, simply fill out this form to get started. The best part? Inquiring about your refinance options will not cost you a penny or affect your credit score unless you decide to proceed with a new loan.