Gap is the difference between the actual cash value of a vehicle and the balance still owed on your vehicle to the finance company on your loan or lease.  GAP insurance (Guaranteed Auto Protection) covers this difference if a total loss takes place.  There are many scenarios that would call for you to get gap coverage.

Consider this, even if you paid exactly what your insurance company would pay out in the event you crashed your car for the car you purchase, you will also have tax, title, and license fees on top of your loan. Most people have a deductible on their insurance so add on around another $500 dollars. If you have bad credit, that means you will probably not get prime finance rates. This will cause more of your payments to go toward interest decreasing the amount you knock off your loan. This will likely make you have negative equity for a longer period of time.

If you are trading in a vehicle and have negative equity on it you will need gap coverage because you are already putting yourself in a negative equity situation.  You will need to have gap coverage on most auto loans unless you have put between 30% to 40% down on your auto loan.  This will make it less likely that you will have negative equity on your vehicle if it gets totaled.  Picture this, you are leaving for work one sunny morning and look up to see a large tree branch has crashed down on your car causing structural damage.  Not only could this ruin your day but if you have negative equity you will need to continue paying off your totaled car until the loan is done.

Your Insurance company isn’t required to pay off your loan,  they only need to give you what your car is worth, guess who decides what your car is worth?  They do.  Gap coverage can save you a lot of problems down the road when you have an unpleasant incident with your car.

If you are upside down in your auto loan this simply means you owe more to the bank then you can get back on trade in, or outright sale otherwise known as negative equity.  To combat this you will need to do one of the following options 1) Roll balance over on to new loan.  If this is done you are compounding the problem and will most likely have a greater amount of negative equity if you need to trade off your next car during the better portion of your auto loan.  2) Try to find a car that is much cheaper than it should be.  If you can do this you should be able to absorb some or all of your negative equity.  This will be difficult because dealers search all over the United States to find good deals, hence, everyone else is bidding on these deals too.  They usually cost about what they should, especially in today’s market.  3) Pay the difference as a down payment, a combination of this and number 2 is the best way to approach it if you can but bear in mind, it is good to put money down anyway;  Negative equity will just increase the amount you will need.

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