Confused about gap waivers? Here’s what you need to know.
By Tim Meenan
Executive Director, Guaranteed Asset Protection Alliance
All of the paperwork, new information and pressure presented during the vehicle-buying process can be a bit daunting, so it’s no wonder many folks get confused. One subject you definitely don’t want to be confused about is gap waiver, which can be a real lifesaver if something unpleasant should happen to your prized vehicle.
A recent survey of Americans who’ve applied for at least one auto loan found that more than 2 in 5 (42.6%) don’t know what it means to be “upside down” or “underwater” on your loan, and more than 3 in 5 (62.1%) don’t know what a gap waiver is.
Gap is an acronym for “guaranteed asset protection” — and it can get you out of a deep financial bind if your vehicle is stolen or totaled while you still owe payments on your car loan beyond the actual value of the car (a.k.a. you’re “upside down” or “underwater”).
If you purchase a car and it’s totaled or stolen, you still have to make good on the loan (even though the value of the car is probably much less than when you bought it). A guaranteed asset protection waiver, also known as a debt cancellation agreement, is intended to alleviate some or all of the difference between what you owe on your auto finance agreement and what your insurance will pay you.
Isn’t it called gap insurance?
The terms gap “insurance” and gap “waiver” are often used interchangeably, which sounds confusing. The fact is, this gap product is best described as a waiver because it is offered by your creditor and is not actually insurance.
Who exactly needs a gap waiver?
Gap waivers are important for consumers who finance their vehicle. For many drivers, a standard auto insurance policy provides only enough protection to cover the actual cash value of a vehicle when it’s damaged or stolen — and that most likely won’t be the full amount you borrowed. You are still responsible for paying the amount remaining on the finance agreement. However, if you have a gap waiver, the lender can waive some or all of the remaining balance (according to the terms of the gap contract).
Where can I get a gap waiver?
You can purchase a gap waiver at your dealership or financing institution at the time you buy the vehicle. If you want to feel confident knowing that you have coverage no matter what happens, a gap waiver is for you. Car accidents are difficult enough physically, but why risk suffering unnecessary financial difficulties when you could have a gap waiver relieve some of that pressure?