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FEB 22, 2022

Is GAP worth it?



2 min read

If you’ve ever been offered GAP by a dealership or during a refinance, your first question might be “is it actually worth it?” You’re not alone. Here are the basics about what GAP is and if you should get it.

Driver's seat view on a forest road

What is GAP?

Guaranteed Asset Protection (or GAP) helps to pay off the difference between your car’s loan and its value if your car is lost, totaled, or stolen. This is called a “total loss” situation, and it’s usually determined by your insurance.

Example: Your loan is $20,000. Your collision or comprehensive coverage pays your car’s present value, whatever that is at the moment. Let’s say this is a car you bought for $20,000.

Since your car loses about 15-20% of its value once you drive it off the lot, your car is immediately worth $17,000 or less. Which means that you’ll have to pay $3,000 or more in a total loss situation.

Of course, this number varies based on how many of your payments you’ve made. But your car continues to lose value over time, potentially making the problem worse.

GAP covers that difference between your loan and your value in a loss, so you don’t have to pay for it out of your own pocket.

Should I get GAP?

You might want to get GAP if your loan amount is close to or higher than your car’s value, and you want to be protected in a total loss situation. This is because your car will almost always keep losing value over time, increasing the “gap” between your loan amount and value. 

There are many reasons that your car loses value, including mileage and age. But sometimes cars can lose a lot of value instantly because of events outside of your control. For example, the value of cars decreased in 2020 during the early stages of the COVID pandemic and later increased shortly after in 2021 due to the automotive microchip production shortage. Recalls are a more common example — a car with an open recall can lose value even if you’ve gotten your car repaired.

Of course, if your car’s value is much higher than your loan amount (and you know it will stay that way), then you probably don’t need GAP. If you’ve bought GAP and you no longer need it because you’ve paid your loan down, you do have options. That is, you can typically cancel it. By cancelling, you get a prorated refund — that is, since GAP is paid yearly, you’ll get refunded for any months in the year that you don’t want GAP.

Many car owners have GAP on their loans. You probably already have GAP on your car loan too, and for the same reason: it can be an inexpensive way to get peace of mind, no matter what happens to your car.

With Caribou, you could start saving today!

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* Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.

+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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