Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 26, 2020

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Key takeaways...

  • GAP insurance can be purchased for used vehicles when you use a loan to buy your new-to-you car.
  • When purchasing GAP insurance, you should avoid the temptation to purchase it from your car dealership.
  • A comparison tool can help you find a GAP insurance policy you can afford.

If you are thinking about purchasing a used car or already have a used car that you financed, you may be wondering if you can get GAP insurance and if it is a good idea.

GAP insurance’s official name is Guaranteed Auto Protection, and it is designed to protect you against financial loss when you owe more on your car than it is worth and your car is totaled in a car accident.

Compare coverage options and rates today using our free tool.

Table of Contents

How GAP Insurance Works with a Used Car

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When you finance a used car either with a loan from the bank or a loan from the dealership where you purchased the car, you do not own the car.

You have the right to drive the car as long as you make the payments, but the financial institution officially owns the car until you make your last payment.

When you have GAP insurance, it covers the difference between what you owe on the car and the car’s official value just prior to the car accident that resulted in the car being declared a total loss by your insurance company.

This could protect you against thousands of dollars in financial loss.

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Car Accidents and GAP Insurance

Let’s say you purchased a used car for $10,000. After a year, the car is only worth $8,000, but you still owe $9,000.

If you get into a car accident at this point, your regular car insurance policy would pay the value of the car, not the total amount you still owe to your lending institution.

In this scenario, you would still owe $1,000 on your car note. If you have GAP insurance, it will pay the $1,000 difference, leaving you with zero money owed on your totaled vehicle.

If you do not have GAP insurance for your used car, you can use a comparison tool to quickly find an affordable policy so that you are fully covered if you get into an accident.

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When GAP Insurance Is a Good Decision

If you find yourself facing any of these scenarios, you would be better off finding a GAP insurance policy via a comparison tool and purchasing it online.

  • You did not pay any down payment on your used car
  • Your used car is slated to depreciate quickly over the term of your loan
  • You commute long distances or drive your car more than the average person

When GAP Insurance May Not Be the Right Choice

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Under certain circumstances, a GAP insurance policy may not make sense. In these scenarios, you will need to determine how much your car is worth and how fast it will depreciate over the life of your car loan.

If you find out that your car will depreciate faster than you can pay off your loan after taking these steps, you may want to purchase a GAP insurance policy with the help of a comparison tool.

  • You paid a hefty down payment towards the purchase of your used car that makes the loan worth less than the value of the car
  • You worked with your lender to structure your loan payments so that you always owe less than the value of your car
  • You can financially handle paying off the remainder of your car loan and purchasing a new car in the event you are in a car accident

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Buying GAP Car Insurance from Your Dealership

Under no circumstances should you buy a GAP insurance policy from the dealership where you purchased the vehicle.

It may be convenient, but it’s virtually guaranteed that you will be paying a higher price because car dealerships are not insurance companies.

New and used car dealerships do not have their own insurance policies. Instead, they use insurance policies from other companies and inflate the prices so that they make money every time you make a GAP insurance payment.

When you make your payment to the dealership, they remove their fee. Then, they pay the rest of the money to the actual insurance company.

You can skip the middle man and save yourself money by using a comparison tool to find a GAP insurance policy.

A car insurance comparison tool will find all of the available GAP policies in your area and return the results along with the prices of the policies.

This allows you to browse each policy to see what it covers and the amount it would cost you so that you can make an informed decision.

Compare rates right now using our free comparison tool and find the insurance that’s right for you.