You may have heard about GAP insurance, but you don’t really know what it is or you’ve been offered it when you’ve purchased a car before but you didn’t know what it was. Well, we’ve put together the pros and cons of GAP insurance to help you understand exactly what it is and how it can benefit you.
What is GAP?
GAP stands for guaranteed auto protection and is a type of insurance that is available for people purchasing either a new or used vehicle. What GAP insurance provides is cover for the difference between the outstanding balance on a vehicle loan and the actual value of the vehicle. GAP Insurance is available for both leased vehicles and those bought with a car loan.
When you purchase, or lease, a vehicle, especially a brand new vehicle, it can quickly depreciate in value. This is something that most people are aware of when they get a new car, but what most people don’t think of is what happens if your vehicle is stolen or written off. The balance of your vehicle loan or lease will still be due and the pay out from your insurance company for the value of the vehicle may not be the same as the outstanding loan or lease balance. GAP insurance covers the difference between the value of the vehicle and the outstanding loan. This means that you don’t end up out of pocket if the worst should happen.
The Pros of GAP Insurance
- New vehicles have the steepest initial depreciation and so are in the biggest risk category when it comes to losing out in the event of the car being stolen or written off. When you take out GAP insurance on a vehicle you have purchased on finance or have leased, even if your vehicle is written off or stolen in the first week, you are covered.
- There is a risk when you take out a car loan that you will end up with an upside-down loan. GAP insurance protects you from this. So if you end up incurring additional costs on an up-side down loan and your vehicle is lost or stolen, GAP insurance can help. In addition, if you decide to refinance during the initial loan term, the remaining GAP insurance premiums is refundable on a pro-rata basis.
- GAP insurance doesn’t come with an excess, so if you do need to claim on your GAP insurance, then you don’t need to worry about coming up with any extra cash. GAP insurance is automatically paid out without you incurring any additional charges.
- There are enough things to worry about without having to worry about finding a few extra thousand to pay off your car loan or lease if you are unlucky enough to be the victim of car theft or in an accident. GAP insurance provides peace of mind, which is quite possibly the biggest benefit of purchasing it.
- Like any form of insurance, you do have to pay something for the policy. Depending on the policy you are purchasing, you could be paying for a one off cost when you purchase the vehicle to cover it or can be added to your finance, spreading the cost of the insurance over the course of your repayment period. However it is offered to you, the amount that GAP insurance costs is surprisingly affordable and if you know that you want to purchase it beforehand, you can budget for the additional cost without any hassle.
The Cons of GAP Insurance
- GAP insurance can generally only be purchased when purchasing the vehicle. Most policies have a time restriction placed on them. The time restriction not only applies to how long the GAP insurance runs for but also when you can purchase a GAP insurance policy. If you have owned your vehicle for more than a year, you will struggle to find a company willing to provide you with GAP insurance. So if you want the added protection that GAP insurance brings, it is a good idea to buy it sooner rather than later. When you are purchasing a GAP insurance policy you should always check that the length of time the policy is going to run for is the same as the length of the car loan on the vehicle you are trying to protect.
- GAP insurance isn’t transferrable. If you intend to sell your vehicle within the first few years of buying it, then you won’t be able to transfer your GAP insurance to a new vehicle or sell the GAP insurance along with your vehicle.
- The cost of GAP insurance is one thing that often puts people off taking it, despite the myriad of benefits that come with it. If you are on a tight monthly budget, it may be that the added cost of GAP insurance means that you can’t quite afford the car you wanted to purchase. Alternatively, if you are buying a low cost vehicle that retains its value well, purchasing GAP insurance might be an unnecessary additional expense.
GAP insurance is one of the best protection products you can buy when you are financing a car, mainly because you never know what is going to happen. GAP insurance is an additional cost, but it is a small price to pay to protect yourself from the cost of paying off a car loan when your car has been stolen or written off and you are trying to buy a new car to replace it.
Interested in GAP insurance? Speak to a member of our team today for your obligation-free finance quote. Our team will talk to you about your needs and tailor a finance and GAP insurance package that is designed to suit your individual needs.
Or contact our friendly team today on 1300 4 CAR LOANS (1300 422 756)
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