Can You Get GAP Insurance on a Used Car?

Guaranteed Asset Protection (GAP) insurance is available for used cars. It covers the financial gap between your vehicle loan balance and its actual cash value (ACV) if it is declared a total loss due to theft or an accident. Standard auto insurance policies typically pay out only the vehicle’s ACV, which may be less than your outstanding loan balance. This leaves you responsible for the difference, but GAP insurance prevents a significant financial burden for a vehicle you no longer possess.

The Role of GAP Insurance for Used Vehicles

Used cars depreciate, creating financial risk when a loan balance exceeds the vehicle’s market value. Longer loan terms, higher interest rates, or a low down payment can exacerbate this “gap” for used cars. If a used car is stolen or totaled, the primary insurance payout might not be enough to cover the remaining loan.

GAP insurance is relevant when you owe more on your loan than the car is worth, a situation often called “upside down” or “negative equity.” This can occur if you made a small down payment, financed for an extended period, or if the vehicle depreciates quickly. It protects you from paying out-of-pocket for a loan on a vehicle you can no longer use.

Eligibility Requirements for Used Car GAP Coverage

Eligibility criteria for GAP coverage vary by provider. Many policies restrict coverage based on the vehicle’s age and mileage, such as limits on cars older than three to five years or with high mileage.

The loan-to-value (LTV) ratio, representing the amount borrowed relative to the car’s market value, is another factor. Lenders may require GAP insurance for high LTV ratios, especially since used vehicles often have higher LTVs due to financed taxes, fees, or warranties. Some policies also have maximum purchase price limits or exclude certain vehicle types, like exotic or commercial vehicles. The loan must originate from a qualified financial institution.

Acquiring GAP Insurance for Your Used Car

You can acquire GAP insurance for a used car through several avenues. Purchasing it directly from the dealership at the point of sale is convenient, but can be more expensive if bundled into your loan, leading to additional interest payments.

Another option is obtaining GAP coverage from an independent insurance company, often as an add-on to your existing auto insurance policy. This approach can be more cost-effective, typically ranging from $40 to $60 annually, and avoids interest charges. Many major insurance providers offer this coverage. Banks or credit unions providing auto loans may also offer GAP insurance. Compare quotes from different sources to find the most suitable and affordable coverage.

Key Policy Details and Management for Used Cars

Understanding the specifics of a GAP insurance policy is important. Policies often have coverage limits, such as a maximum percentage of the loan balance, and may exclude certain charges like missed payments or extended warranties. Your primary auto insurance deductible also interacts with GAP coverage; GAP typically covers the difference after your comprehensive or collision payout.

Cancelling GAP insurance is possible if you pay off your loan early, sell the car, or if the vehicle’s value exceeds your loan balance. To cancel, contact the entity from which you purchased the policy—dealership, insurer, or lender—and inquire about their cancellation process. If you paid for the policy upfront, you may be eligible for a prorated refund. When filing a claim, your primary auto insurer determines the actual cash value, and the GAP insurer covers the remaining eligible balance.