Did you ever wonder what would happen if you wreck your brand new car or vehicle a week after it was purchased? How about a month after? A lot of car owners think an accident a year after an auto purchase is not possible. Unfortunately, reality is not like that. Your car can get in a wreck the moment it drives out of the dealership. This is the reason why you should have Guaranteed Asset Protection, more commonly known as GAP insurance coverage for vehicles. Without this coverage, you can end up paying for a loan on something that is damaged.
The fact is that lenders are not concerned about your reason for having a loan, or what happens to what you bought after your loan. The only thing lenders are concerned about is the fact that you borrowed money and you are required to pay it back. This means you are still obligated to pay back the full amount of your loan, even if your car was totaled in an auto collision. This is not a pretty scenario at all. This is where the significance of having GAP insurance coverage comes into play.
A lot of car owners are not aware that a new car starts to depreciate the moment it leaves the dealership. In extreme cases, the value of a brand new car can decrease as much as 30% in just a few weeks of leaving the dealership. Its value depreciates once it starts to be a working car rather than on display. Even if your auto insurance company will pay your car’s present Kelley Blue Book value when they hand you a check, you still need to shoulder that 30% from your own pocket. Having a GAP insurance coverage clears you out of the transaction by covering that 30%. It is not surprising that most lending companies require borrowers to have GAP coverage as part of their contract.
Think about this: If you got into an auto collision and your car is not insured under Guaranteed Asset Protection insurance, you have to deal with the headache of paying for a loan that will consume your resources. Most probably, you will not be able to get another vehicle until you have completely paid for the damaged one. Again, not a pretty scenario: No car and no cash to purchase a new one. Having a GAP insurance policy might not be able to help you purchase a replacement car, but you will have better chances of getting another loan approved.