Picture this. You just bought your dream car. It’s shiny, smells brand new, and even your friends are jealous. You drive off the lot feeling like a legend, until the unthinkable happens. Maybe someone rear-ends you at a stoplight, or a deer jumps out of nowhere. Your car is totaled. You think, “No big deal, my insurance will cover it.” But then you find out your car’s value has dropped, and your insurance payout doesn’t cover what you still owe on the loan.
That painful difference between what your car is worth and what you owe is called “the gap.” And that’s exactly what GAP insurance or Guaranteed Asset Protection was made to cover.
GAP insurance covers the difference between your car’s current value and what you still owe on your auto loan or lease if your car is totaled or stolen.
Here’s a quick example: You buy a new car for $25,000. After a few months, it’s worth $20,000 because cars lose value fast. If you still owe $25,000 and your car gets totaled, your regular auto insurance might only pay $20,000. That leaves you owing $5,000 on a car you can’t even drive.
With GAP insurance, that $5,000 is covered. You don’t have to stress about paying off a car that’s sitting in a junkyard.
Even though GAP insurance is amazing, it’s not a magic shield. It won’t cover:
Your deductible (the part of your claim you pay out of pocket)
Missed loan payments or late fees
Extended warranties or service plans
Extra add-ons like tire protection or oil change packages
So think of GAP insurance as your safety net, not an all-access pass. GAP insurance is not a replacement for your regular insurance policy on your vehicle.
Not everyone needs GAP, but it’s super helpful if any of these sound like you:
You made a small (or no) down payment. If you didn’t put at least 20% down, you might owe more than your car’s worth for a while.
Your car loan lasts longer than 48 months. Long-term loans mean you’ll be “upside down” (owe more than the car’s worth) for longer.
You drive a lot. The more miles you put on your car, the faster it depreciates in value.
You’re leasing your vehicle. Leases almost always require GAP insurance since you don’t technically own the car.
You’d struggle to pay off the difference yourself. If covering that “gap” would wreck your budget, GAP protection can be a smart move.
Cars lose value faster than most people realize. A brand-new car can drop 10% of its value in the first month and up to 20% in the first year. That means if you owe $25,000, your car might only be worth $20,000 in a few months.
Without GAP insurance, an accident could leave you paying thousands of dollars for something you can’t use anymore.
Jordan Kaehler, Loan Portfolio Manager at First Alliance Credit Union, explained it best on the Good Money Moves podcast:
“Let’s say your car is worth $15,000, but you still owe $17,000 after it’s totaled. GAP will cover that $2,000 difference so you’re not stuck paying for a car you no longer have.”
At First Alliance Credit Union, our GAP coverage even includes a $1,000 credit toward your next vehicle loan if you finance your replacement car with us. That’s like getting a jump-start on your next down payment.
Jordan gives you expert advice on dealer fees & add-ons!
Dealers will almost always try to sell you GAP insurance when you buy a car. But here’s a secret, you can get it for less at First Alliance Credit Union.
Dealerships often charge double what credit unions do. And since we care more about your long-term financial health than making a sale, you’ll save money and get better coverage.
When you get your auto loan through First Alliance, you can add GAP protection, extended warranties, or even debt protection (which helps cover your loan if you lose your job, become disabled, or pass away). These options give you full peace of mind without the dealership markup.
If you’re not sure whether you already have GAP insurance, look at your loan or lease paperwork. You can also call your lender or insurer to check. If you don’t have it, and your car is newer or still heavily financed, it’s worth a quick conversation with your credit union.
Getting GAP insurance is one of the smartest ways to protect your finances, especially when you’re buying a new or used car with a loan.
Before you shop, get pre-approved for an auto loan with First Alliance Credit Union. You’ll know exactly how much car you can afford, what your car loan rates will be, and how to keep your car loan payments within budget. You can even use our car loan payment calculator to plan ahead.
When you’re ready, we’ll walk you through everything, from getting the right loan term to protecting your investment with GAP insurance.
Ready to buy or refinance your ride? Visit First Alliance Credit Union to explore your options, get pre-approved, and learn how GAP protection can help you drive with confidence.