When you drive a new car off the lot, its value immediately begins to drop. This process is called vehicle depreciation, and it’s one of the most significant hidden costs of car ownership. In fact, many vehicles lose up to 20% of their value in the first year alone. For drivers who finance or refinance their cars, this rapid loss in value can leave them financially vulnerable—especially if the car is totaled or stolen. That’s where depreciation protection comes in.
What Is Depreciation Protection?
If you’ve ever wondered about depreciation protection, the answer is simple: it’s a safeguard against the financial risk caused by your car losing value over time. Unlike GAP insurance, which covers the difference between what you owe on your loan and the car’s value, depreciation protection reimburses you for the lost value of your car.
For example, if your car is totaled in an accident, your payout is equal to the difference between your vehicle’s MSRP or retail value at the time of your purchase or refinance, less the amount of the loan balance at the time of total loss.
Why Vehicle Depreciation Matters in Auto Financing
Auto loan depreciation can create problems if your loan balance doesn’t keep pace with the rate your vehicle loses value. This is especially true in the early years of a loan, when depreciation is steepest. If you owe more than your car is worth, you’re considered “upside down” on your loan—a risky position if something unexpected happens.
When paired with refinance loan options, depreciation protection becomes even more powerful. Refinancing can lower your monthly payments or reduce your interest rate, while protection ensures you don’t lose financially as your vehicle naturally depreciates.
How Depreciation Protection Works with Refinance Loan Options
At Gravity Lending, we help drivers explore refinance loan options that fit their budget and financial goals. Adding depreciation protection to your refinance loan ensures that, if your car experiences a total loss, you’re covered for the difference between the vehicle’s original value and its current depreciated value.
This combination provides two critical benefits:
- Immediate savings on your loan payments.
- Long-term security through car value protection in case of unexpected loss.
Protecting Your Investment
You can’t stop vehicle depreciation, but you can protect yourself from its financial consequences. By combining refinance loan options with depreciation protection, you create a safety net that preserves your investment, lowers risk, and gives you peace of mind.
At Gravity Lending, our experts specialize in helping drivers navigate auto loan depreciation and find the right solutions for their needs. Protect your car’s value, safeguard your wallet, and drive with confidence.