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Understanding the GAP: How GAP Insurance and Auto Refinancing Work Together

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Car accidents can be expensive, not to mention dangerous. Juggling insurance claims, costly repairs, and replacement vehicles inevitably leads to stress and frustration, especially if you’ve also incurred injuries. The last thing you want to do is make payments on a car you no longer have.

Fortunately, Guaranteed Asset Protection (GAP) insurance helps keep costs down after an unexpected accident. In order to make full use of GAP insurance, it’s important to understand what it is, how it works, and who needs it.

What Is GAP?

GAP insurance is a type of car insurance that can be used to supplement new or existing car loans. Should your car be lost, stolen, or totaled, GAP insurance covers the difference (or the gap) between the value of your car and what you owe on your car loan.

How GAP Works

After an accident, your insurance payout will only reflect your car’s current market value. If your car is worth less than the remaining balance of your loan, your insurance payout won’t cover all the costs you incur. GAP insurance helps pay the difference between the value of your car and the remaining balance of your loan. For example, if you owe $15,000 on your car, but the car itself is only worth $10,000, GAP insurance can help you pay the remaining $5,000 you would owe after an accident.

Who Should Have GAP Coverage?

Some loans require GAP insurance, but it is usually optional, and not everyone needs it. Drivers who own their car or owe less money than their car is worth would not benefit from GAP.

Only consider getting GAP insurance if you have reason to believe you will end up paying more than what the car is worth. Situations where getting GAP is encouraged include financing a car for a particularly long period (60 months or more) or paying little to no money down at the time the loan is finalized.

GAP Insurance and Auto Refinance

GAP coverage does not carry over if you refinance your loan because the initial loan will be paid in the refinancing process. During the refinancing process, you can opt for a new GAP insurance policy if the balance of your new loan is still more than your car’s market value.

Protect Your Assets with Gravity Lending

After an accident, the last thing you should be worrying about is paying more money for a car you can’t use. Fortunately, GAP insurance can cover the difference between the value of your vehicle and your remaining loan balance.

Contact Gravity Lending to learn more about GAP insurance and how it can help you get back on the road, faster.