When everyday people make a major purchase, they anticipate comprehensive insurance coverage provides complete financial security. Much to their surprise, this may not be the case.
When everyday people take possession of expensive items such as automobiles, fast-declining values and coverage result in a financial gap. If something goes wrong, a borrower could be on the hook in ways they did not imagine. That’s why an increased number of people are securing Guaranteed Asset Protection (GAP) to fill the financial void.
The concept of Guaranteed Asset Protection (GAP) is both simple and elusive to people who take out loans to make major purchases. This type of protection typically pays the difference between the value of an asset and the outstanding loan amount. The term “GAP” highlights precisely what it does for borrowers. It provides additional resources so that people don’t have to reach into their pocket to cover expenses when assets such as automobiles have depreciated, and the loan amount remains higher than their value.
Imagine someone recently received car loan approval and completed all the paperwork. The car dealership receives the funds, the insurance company provides full coverage, and the new owner drives away with that new car smell. Only miles from the car lot, the driver is involved in a wreck, and the vehicle is declared “totaled.” In another scenario, the same new vehicle is stolen within days of the purchase.
It may seem counterintuitive, but the insurance carrier may only approve a claim for the estimated value of the now “used” car. The immediate decline in value results in the owner receiving less money than the sticker price and what they owe on the loan. Guaranteed Asset Protection or GAP coverage makes up the difference between what is owed and the amount the insurance carrier is willing to pay on the claim.
Some local lenders may offer plans that will pay a set amount towards your new auto loan in the event of a total loss or unrecovered theft of a vehicle. Looking into these additional perks will be worth your time and can potentially save you more money in the long run.
This type of financial safeguard has evolved into a broadly-used type of protection beyond automobile purchases. Community members now routinely secure GAP when taking out loans for boats, jet skis, RVs, ATVs, and travel trailers, among many others. Although the previous examples may seem somewhat extreme and statistically unlikely, wide-reaching reasons persist for people to consider securing GAP. Some of the more subtle reasons to obtain Guaranteed Asset Protection include the following.
An increased number of borrowers procure GAP in an effort to eliminate unnecessary financial vulnerability. Unfortunately, too many hard-working community members discover — after the fact — they must spend additional money for something they thought was securely covered.
In a world in which retail outlets barrage consumers with product warranties, you may be unsure if buying GAP coverage is worth the money. The relatively low cost of this protection can result in a windfall of savings.
Consider reviewing your current car loan or RV loan repayment amount against baseline estimates from resources such as the Kelley Blue Book, among others. It may be worthwhile to get in touch with your insurance carrier and understand its top-line claim amount should the asset be totaled or stolen. These factors will help you make an informed decision on whether purchasing Guaranteed Asset Protection (GAP) is the right for you.
Guaranteed Asset Protection is typically available through your local lender and the cost can be settled as a lump sum payment or rolled into the RV or car loan.
If you are concerned about a financial gap between the value of your vehicle and the outstanding car loan amount, promptly contact your local credit union or community bank for trusted advice and a reliable GAP program you can count on.