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Gap coverage for your car loan. Good or bad idea?


By: Lorene Turnquist

GAP coverage is not for everyone but it is a smart decision for many auto loan consumers. Why? Let’s take a look.

First, what exactly is GAP coverage? It’s a simple concept. If your vehicle is considered a total loss from your insurance company because it is wrecked or stolen, GAP coverage will pay the difference between what you owe on your loan and the agreed upon settlement amount with the insurance company.

Let’s say you bought a car and as it goes with most auto loans these days, you put little or nothing down. You may have even financed the tax and license into the loan. Maybe you financed 115% or more the actual value of the car. Simply put - if the car was purchased for $25,000 and you added in tax, title and license your loan balance out the door could easily have been $28,000.

Fast forward a year and then out of nowhere someone rams your car and the insurance people say it is not worth fixing. It’s a total loss. Your loan balance is now $25,000. But the insurance company says the value of your car before it was totaled is just $21,000. The insurance company sends the $21,000 to the credit union toward your loan but you still owe $4,000 and worse yet – YOU DON’T HAVE A CAR!!! Now what?

If you had purchased Gap coverage and filed a claim, the $4,000 you were short would be paid by GAP company. Boom! You don’t have a loan payment anymore and everybody is happy. Well, almost. You still don’t have a car. Now you get to start this car buying process all over again. You don’t have a trade-in so you’ll probably go back and do 115% to 125% financing again and owe considerably more than the car is worth. But no need to worry so long as you purchase Gap coverage again for this new auto loan, just in case misfortune strikes twice!

One more thing. We offer a service called GAP Plus. It is still the traditional GAP coverage – that’s all the same. But the Plus feature gives you a helping hand when you buy the replacement car. The Plus gives you $1,000 credit to your new eDCU auto loan for the replacement car when you do your purchase financing at the credit union. This just comes with the package.

In the end, if you put lots of money down or if you have lots of cash reserves to handle the “what-if” then GAP probably isn’t for you. But if you’re like many of members we’ve helped with GAP claims over the years and don’t put much money down, GAP is a smart move. According to Windi Wagner, Manager of our Tumwater Financial Center we have filed 21 GAP claims on our member’s behalf in just the last 3 years alone. Some folks have had the misfortune of filing a claim more than once!

Remember to shop GAP coverage from lender to lender and compare with the dealer pricing. Make sure you’re getting the best deal because prices vary and so does the availability of the Plus feature.