Should I get GAP insurance on a used car?
Getting GAP insurance on a used car is uncommon, but if you take out a longer-term auto loan, GAP insurance is worth it. GAP insurance can cost as little as $1.67/mo.can and covers 25% more than the actual cash value of your vehicle so you don’t pay out of pocket in the event of an accident.
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UPDATED: Mar 8, 2021
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- Why get GAP insurance? GAP insurance covers the difference between a car’s value and what is owed on it at the time of an accident
- Most cars lose up to 20 percent of their value in the first year.
- GAP insurance only covers the difference in a car’s value; GAP insurance won’t pay for repairs, missed payments, or other expenses.
GAP insurance, or guaranteed asset protection insurance, is designed to protect your financial interests in the event that you total your vehicle and owe more on the loan than the actual cash value of your car. But should I get GAP insurance on a used car? Can I get GAP insurance on a used car?
While it is uncommon, you can get GAP insurance for a used vehicle, often known as a loan/lease payoff program.
Sometimes, you need to invest in more coverage than the minimum car insurance requirements. GAP insurance is worth it if you’ll ever owe more on your loan than what the vehicle is worth. It can provide you with peace of mind in some cases, but it’s not necessary for every car.
“Can I purchase GAP insurance on a used car?” Read through our comprehensive guide to answer this question and learn what is GAP insurance for used cars and if you should add GAP insurance coverage to your policy.
Ready to compare major insurance companies that offer GAP insurance on used cars? Enter your ZIP code into our free quote comparison tool to find affordable GAP insurance.
What is GAP insurance when buying a car?
What is the purpose of GAP insurance? It is extra insurance coverage that helps fill in the “gap” that sometimes exists between what your car is actually worth and what you owe on your loan at the time of an accident.
Is GAP insurance worth it when buying a car? GAP insurance is worth buying when you finance a new car with long term loan payments.
Can I get GAP insurance on a used vehicle? GAP insurance is available on new and used cars. GAP insurance on a used car works the same as it does on a new car, although it is much less common.
When is GAP coverage necessary on a used car? Imagine you purchase a used car for $10,000 and have not yet made a single payment. Now imagine your car gets totaled.
Your insurance company will only pay for the actual cash value of your car, which will already be less than what you purchased it for due to depreciation. The following table estimates the actual cash value of our hypothetical used car.
|Used Car Deprecation Scenario||Rates|
|Used car cost||$10,000|
|Used car deprecation rate||11%|
|Actual cash value of used car||$8,900|
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Your loan does not go away just because the vehicle is no longer drivable. After receiving assistance from your insurance company, you’ll still owe $1,100 out of pocket on your loan. The best auto GAP insurance would cover that amount for you.
Is GAP insurance worth it on a used car? It depends on your budget and your loan length. Customarily, if you take out a long-term loan on your new or used vehicle, also considering purchasing GAP protection for cars.
GAP insurance is sold by car dealerships and some insurance companies. Typically, cheap GAP insurance can be purchased directly through your auto insurance company.
You can buy GAP insurance as a stand-alone policy from a GAP insurance company. Always shop around for a plan that will provide you with better rates in addition to GAP insurance.
How does GAP protection work?
Most people today buy new cars with the help of a finance company. Payments are made for a period of years until the car is paid in full. So do you really need GAP insurance on a new car?
There are times when a driver gets into a serious accident and the insurance company declares the car a total loss. The insurance company will determine the value of the car and pay that amount.
In the perfect scenario, the value of the car will exceed what the policyholder still owes to the finance company. The insurance agency will send a check for the balance of the loan to the company, and the remainder of the money will go to the policyholder, so there is no need for GAP insurance.
Unfortunately, there are many times when the amount owed on the car actually exceeds what the vehicle is worth. In this case, the insurance company will pay the loan company the value of the car in accordance with the insurance plan.
The difference between that payment and the amount owed on the loan will have to be covered by the policyholder. When this happens, GAP insurance is worth the money.
As the policyholder, you’ll have to continue making payments until the loan is paid in full. GAP insurance protects you so that you won’t have to make payments on a car you no longer own.
But do you really need GAP insurance on a used car? Especially only that you plan to pay off quickly? Not usually. GAP insurance for a used car purchase is only necessary if you take out a loan longer than 48 months.
How much does GAP insurance cost?
If you purchase GAP insurance from a lender when you buy your car, you will pay considerably more. You can expect to pay between $500-$700 if you get your GAP insurance from a lender.
Buying GAP insurance from your auto insurance provider will be much cheaper, around $20 a year.
You can also purchase it as a stand-alone policy for about $300 a year.
How do auto insurance companies determine if a car is a total loss?
In general, cars are declared a total loss when the cost to repair them exceeds the actual value. The process is the same whether a car was purchased new or used.
It’s important to note that there are times when the company will total out a vehicle even though the repairs are a little less than the value of the car. You can expect the company to declare a total loss if the repairs are 75 percent or more of the total value.
Once the insurance company determines that the car is a total loss, they’ll let you know what valuation they used to arrive at this decision. How do insurance companies value a car in the event of a total loss?
Most insurance companies work off actual cash value, which is the amount you could expect to sell the car for prior to the accident.
Insurance companies determine the fair market value by using tools like the NADA valuation system. They also look at the condition of the car prior to the accident and the mileage.
You can refute the actual cash value of your vehicle as determined by your insurance company, but it can be tedious and may require legal action.
The features you had in the car may play a role, so be sure to notify your company if your car had upgrades that they might not be aware of.
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When should you look into GAP insurance?
Do you have to buy GAP insurance? No, according to the Insurance Information Institute, only liability insurance is required in all states. GAP coverage is completely optional. Therefore, people are often confused about whether they’ll even need GAP insurance.
Should you purchase GAP coverage on a new car or used car? You certainly don’t want to pay for unnecessary coverage, but these plans can really help you out financially if your car has negative equity.
Should I get GAP insurance?
You should get GAP insurance if you:
- Take out a loan that has an extended-term because you’ll require more time to build equity.
- Purchase a brand that depreciates faster than others.
- Purchase the car with anything less than 20 percent down.
- Borrow more than the purchase price by financing negative equity from an old car, extended warranties, tax, license, and other expenses.
- Have a car that is three years old or less.
- Are the car’s original owner
- Have a loan that is 5 years or longer
- Decided to lease a vehicle
As you can see, GAP insurance is a good deal for some car owners. Should I buy gap insurance on a used car? You can and should buy GAP insurance on a used car, as well. We highly recommend doing a GAP insurance price comparison before buying an auto insurance policy.
While it is worth getting GAP insurance, not all insurance policies are equally affordable. Should you get GAP insurance on a used car, consider buying the policy from an insurance company. The rates will be substantially cheaper.
What do you need to know about GAP insurance when buying an older car?
Remember that the purpose of GAP insurance is to help out people who owe more on a car than it’s worth. Ask yourself, do you really need GAP insurance on a used car? If you’re paying cash for an older car, then there’s no financing note on it to insure.
GAP insurance is absolutely not necessary in this case, but you may want to carry collision coverage and comprehensive coverage to make repairs if you’re in an accident.
What does fully comprehensive auto insurance cover? It will protect you from damage caused to your vehicle when it is not in motion, like from a hail storm or a flood.
The more you drive, the faster your car depreciates. Regardless of how old your used car is, you may want GAP insurance if you’re financing a commuter car that will be driven more than 15,000 miles per year.
Check the value of your car before making the purchase. If you’re getting a great deal and are financing less than 80 percent of the value, then GAP insurance typically won’t be necessary.
What are alternatives to GAP insurance?
If you owe more than your vehicle is worth, there are few things you can choose from to protect yourself. You can choose:
- GAP insurance
- Pay off your vehicle
- Look for other programs like new or better car replacement
Choose the best option for your particular situation.
Where can you find GAP insurance?
If you answered yes to the question, “Should I purchase GAP insurance on a used car,” now you must be wondering where to get the best GAP insurance.
We already talked about when you should get GAP insurance, but how do you get GAP insurance on your car? Who you get GAP insurance from will drastically affect the price you pay for this coverage.
You may be wondering, can you get GAP insurance after you buy a car? Yes, you can; there is no limit as to when you can get GAP insurance.
While most dealerships offer this coverage at the point of sale, it is usually very expensive and you’ll end up paying interest on the coverage if it’s attached to your loan.
Fortunately, you can also go through your insurance provider. Before signing with the dealer, call your agent to see if you can get a better rate with the company you already have.
Additionally, you can also shop around to save money on your insurance rates by comparing auto GAP insurance quotes.
Usually, the best place to get GAP insurance is through an insurance agency. The average cost of GAP insurance from a dealership will be hundreds more annually than through an insurance company.
GAP insurance through a dealership may also not cover seven-year loan terms.
GAP insurance is a smart investment for people who have negative equity in their cars, but you should always read the fine print.
Some people incorrectly think it must be purchased from the dealer at the time that you buy your car, but that is not true. You can get GAP insurance later and you can tack it on to your regular insurance plan.
If you feel that your insurance company’s fees are too high for this coverage, then use a comparison tool to easily shop around for better GAP insurance plans.
Shop around to get the best deal on GAP insurance.
As you know, comparing auto GAP insurance online is worth it. Compare GAP insurance rates right now by entering your ZIP code into our free auto insurance rates tool.
Frequently Asked Questions: Should I get GAP insurance for a used car?
Can you get GAP insurance on a used car? now that you know the answer to this and more, like when GAP insurance is required and if you should buy GAP insurance on a new car or used car, check out our frequently asked questions below.
#1 – Should I get GAP insurance from the dealer or insurance company?
It’s common to wonder should I get GAP insurance on my used car from the dealership or an insurance company. Usually, the dealership will charge hundreds of dollars annually, whereas your insurance company will only charge around $60.
#2 –Where can I buy GAP insurance online?
A quick internet search will help you find stand-alone policies. But remember the top GAP insurance providers are usually insurance companies. Most total loss GAP insurance reviews prove the coverage is worth it.
#3 – Is GAP insurance required on a new car?
No, you do not have to get GAP insurance; it is usually never required. However, asking if GAP insurance is necessary for a new car will often lead you to a different answer.
#4 – How much does GAP insurance cost on a used car?
Used and new car GAP insurance is worth around $60 annually, depending on where you purchase your auto insurance policy.
#5 – Why do I need GAP insurance?
Buying an auto GAP insurance policy is only necessary if you’ll ever owe more on an auto loan than your vehicle is worth. If this does not describe you, then you should not purchase GAP insurance online.