The Consumer Value of GAP

The intent of this article series is to provide the reader with accurate and helpful information on a voluntary protection product called GAP waiver. We started with GAP 101 and continue with the consumer value proposition.

From our previous article, readers now know that Guaranteed Asset Protection Waivers (GAP waivers) are a voluntary product offered by dealers and lenders to car purchasers to cover all or part of the remaining loan balance when a financed vehicle is a total loss or unrecovered theft. By helping protect consumers from making payments on a car they no longer have, GAP waivers are ultimately helping consumers protect their household finances.

Consumers financially exposed

The state of consumer finances show there’s a consumer need for products like GAP waivers. According to the Federal Reserve’s 2023 Survey of Economic Well-Being of U.S. Households, 37% of consumers would struggle to come up with just $400 to pay an unexpected expense. 

In its June 2024 report on “Negative Equity and Auto Lending,” the Consumer Financial Protection Bureau observed that the mean negative equity amount was a whopping $5,073 for new vehicle and $3,284 for used vehicle financing transactions. Said another way, this size of negative equity creates a “gap” exposure at the outset of the finance transaction, which usually increases as the vehicle depreciates faster than the loan amortizes. Edmunds reports that in Q3 2024, 1 in 5 vehicle trade-ins with negative equity are underwater by an amazing $10,000 or more – that is a large financial exposure for American households.

GAP waiver to the rescue

One of the great things about GAP waivers is that they are so widely available at many thousands of auto dealers and lenders across the nation. Importantly, almost all consumers who want a GAP waiver can get it point-of-sale since GAP waivers are available:

• No matter where you live and work
• No matter your job, whether civilian or military
• No matter your credit score
• No matter your driving record and how far you drive each year
• Almost no matter what you drive (cars older than about 10 years, collector cars, and super-expensive cars usually don’t qualify)

Consumers can conveniently include the cost of a GAP waiver in their financing as well, without having to pay a separate fee.

A consumer lovefest

There are many, many millions of GAP waivers in circulation as consumers see the need for this kind of financial protection. It’s no surprise that academic research shows consumers love GAP waivers. Academic research fielded by the highly regarded University of Michigan Survey Research Center in 2020 showed that an eye-popping 9 of 10 consumers surveyed would not only purchase GAP waiver again, but they would also recommend it to others.  That is high praise for the consumer value of GAP waivers.

We hope you found this material informative. In our next article in this series, we’ll get a little wonky and look at the compliance framework that protects consumers.