In the unfortunate event your vehicle is declared a total loss due to an unrecoverable theft or accidental damage, your auto insurance company will typically pay the current market value of your vehicle less your deductable. But what if your loan balance is higher than the market value of your vehicle? Answer: You would be responsible for paying off the difference, including your deductible. This can be expensive.
The reason for the potential difference is that normally the loan balance decreases at a predictable amount as monthly payments are made. However, the market value of your vehicle is influenced by several variable factors (e.g. supply, demand, mileage, condition). This means that market value often may be lower than your outstanding loan balance- particularly early in your contract when you have the most to lose.
Guaranteed Asset Protection (GAP) can help pay the difference, including up to $1000 of your insurance deductible. GAP is an optional form of protection available only at the time you sign your retail finance contract. GAP coverage is in addition to your comprehensive automobile insurance coverage.