Guaranteed Asset Protection Explained: What You Need to Know

What is Guaranteed Asset Protection (GAP)?

When you take out an auto loan to finance a vehicle, your loan balance may not always match the car’s market value. In the unfortunate event that your car is totaled in an accident or stolen, your auto insurance will typically cover only the car’s depreciated value—not what you still owe on your loan. This difference, known as the purchase gap, can leave you responsible for paying off a loan amount on a vehicle you no longer have.

That’s where Guaranteed Asset Protection (GAP) comes in. GAP, also called gap coverage, helps cover the difference between what your insurance company pays and what you still owe. Without it, you could be left making loan payments on a car you can no longer drive.

How Does GAP Work?

Let’s say you purchase a car for $30,000 and finance the entire amount. After a year, your car’s value drops to $24,000. If your car is totaled or stolen, your auto insurance might only pay you the current market value—$24,000—but your loan balance is still $27,000. This leaves you with a $3,000 purchase gap.

If you have GAP, your provider will cover the gap amount, so you won’t have to pay out-of-pocket for a car you no longer own. If you don’t have GAP, you would still be responsible for the remaining $3,000 in loan payments.

Who Should Consider GAP?

Not every car buyer needs GAP, but it’s especially valuable in the following situations:

• You made a small down payment (or none at all) – If you financed most or all of your car’s value, your loan balance is likely higher than your car’s worth for the first few years.
  
• You have a long loan term – The longer your car loan, the more time depreciation has to outpace your loan amount.
  
• You drive a lot – High mileage accelerates depreciation, increasing the risk of owing more than your car’s value.
  
• Your car’s value drops quickly – Some vehicles depreciate faster than others, creating a larger purchase gap early on.

How to Get GAP

There are several ways to offer GAP coverage for your vehicle:

• Through refinancing your auto loan –Caribou offers optional GAP coverage to help protect your assets and give you peace of mind. Adding GAP can help cover the difference between what you owe on your auto loan and your car’s value in the event of a total loss. [Link to GAP landing page when ready.]
  
• From Your Lender or Dealership – Some lenders or car dealerships may provide optional GAP coverage when purchasing a vehicle 
  
• Third-Party Providers – Independent insurers also offer GAP policies, sometimes at lower rates than dealerships.

How Much Does GAP Cost?

The cost of GAP varies depending on where you purchase it. Here’s what to expect:

• Auto insurance companies may charge $20–$40 per month if you add it to an existing policy.
  
• Dealerships and lenders might charge a one-time fee of $500–$700 when financing your car.
  
• Third-party insurers often fall somewhere in between, offering flexible pricing based on your loan amount and vehicle type.

Is GAP Worth It?

If you owe more on your car loan than your vehicle is worth, GAP can be a lifesaver. It prevents you from being stuck with an unpaid loan after an accident or theft. However, if your loan-to-value ratio is low, or if your loan balance is nearly paid off, you may not need it.

To determine if GAP makes sense for you, consider:

• How much you owe on your loan vs. your car’s value
  
• Your loan term and down payment
  
• Your car’s depreciation rate
  
• Whether your lender offers a GAP waiver

Final Thoughts

Guaranteed Asset Protection (GAP) provides financial protection if your car is totaled or stolen while you still owe more on your loan than your insurance payout. While it’s not necessary for everyone, it can be a smart investment for those with high loan balances or vehicles that depreciate quickly.

Before purchasing GAP, check with your lender and insurance company to see if they offer GAP coverage and compare costs. Ensuring you have the right protection can save you thousands of dollars in unexpected out-of-pocket expenses. See how much you can save—start our quick and easy process today.