Say for example you have just purchased a brand new car and a week after something unfortunate happened that turned your new ride to an almost total wreck. Have you ever asked yourself what would you do when this situation happens? A huge number of car owners think it is not possible for a car to get wrecked one year after its purchase. Most of them really do not want to entertain negative thoughts. The truth is that your car can get in a wreck the moment you drive it out from the dealer. This is the main reason why insuring your car under Guaranteed Asset Protection insurance will work to your advantage. Without a GAP insurance coverage, you can end up paying for a loan on a damaged or totaled car.
You should know that lenders are not particularly concerned of your reason for having a loan, or what happened to your purchase after your loan. Lenders are only concerned with the fact that you have a loan and you have an obligation to pay the borrowed money back. This means you are still obliged to pay back your loan in full amount, regardless if your car was totaled in a collision. Not a nice scenario at all. This is where the importance of having your car under GAP insurance coverage comes into play.
A good number of car owners do not know the fact that a new car starts to depreciate the moment you drive it out of a dealership. After a few weeks of driving, the value of a brand new car can go down as much as 30% in extreme cases. A policyholder still needs to pay for that 30%, even if the insurer will pay the current blue book value of a car. GAP insurance coverage covers that 30% and clears you out of the transaction. It comes as no surprise that having GAP insurance coverage is a basic requirement in most lender contracts.
Consider this: If you got yourself into an auto collision and you do not have Guaranteed Asset Protection insurance, you have to deal with the hassle of paying for a loan that will consume your resources. Most probably, it will not be possible for you to get another car until the damaged car is paid completely. Again, not a nice scenario: No car and no cash to get a replacement. Having your car insured under GAP insurance coverage might not be able to help you get a replacement car, but it will give you better chances of getting another loan approved.