When you buy a new car, you pay a certain amount for it. Then, as you drive away, your car starts to depreciate and lose its value rapidly. Unfortunately, your auto loan declines at a much slower rate as you pay it off month by month.

If you were to get in an accident, your car is stolen, or something else happens that totals your car, your insurance will only cover the amount the vehicle is worth at that time. This is not necessarily the amount you have left on your loan. If this happens to you, you could be left paying off a loan for a car that no longer exists.

You can avoid this situation by purchasing GAP insurance when you buy your car.

What is GAP insurance?

GAP insurances stands for "guaranteed asset protection," but is also thought of as covering the "gap" between what your vehicle is worth and how much you still owe on it. When you buy a car, you also purchase an insurance policy. Most people keep their vehicle covered with both comprehensive and collision insurance. Unfortunately, even full coverage only covers the vehicle's fair market value and not the balance of your loan.

This extra GAP insurance will pay off the remaining balance of your loan after an accident or theft. Without, you are left still making payments out of your own pocket.

What does GAP insurance cover?

While GAP insurance will cover the balance of your auto loan, there are a few items it will not pay for. These include:

  • Vehicle repairs
  • Loan rollover balances included in your new loan
  • Extended warranties
  • Down payment on a new car
  • Missed loan payments
  • Bodily injury or medical expenses

Do I need GAP insurance?

If you plan on rapidly paying down your auto loan, you might be able to go without GAP insurance. However, you should consider it in the following situations:

  • If you paid less than 20% for a down payment
  • Your loan is more than 60 months
  • You are leasing a new vehicle

If you have any more questions about GAP insurance, call Courvelle Toyota in Opelousas, Louisiana! Our finance department will be more than happy to answer any of your questions and assist your needs.

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