Do you realize how much you are at risk financially if you wreck your car or it gets stolen? Your auto insurance policy might not provide all the financial protection you need, if the value of your car is less than the balance of your auto loan. Gap coverage is designed to cover the difference between the value of your car when it was lost and the balance of your car loan.
This is also called Negative Equity. Having to continue to pay off your car loan every month, when you dont even have your car anymore is probably not what you had in mind when you bought it.
Lets say you lost your car in a hurricane or other disaster, one year after you purchased your car: Now lets say you still owe $20,000 on your auto loan and your deductible is $500. Lets also say your car was worth $15,000 at the time you lost it. The insurance company pays you $14,500. Then your Negative Equity or Gap is $5,500.
Gap Protection isnt really insurance, its a Debt Cancellation Agreement. You could call it a waiver of the part of your auto loan contract that requires you to pay the difference between the value of your car and the amount still owed on your car loan. There are a few...
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