Did you ever ask yourself what would happen if you got into a road accident one week after you purchased a brand new car? How about one month after? A lot of us think an accident in less that one year after buying a car is far from reality. Reality does not work that way unfortunately, and a lot of people opt not to get Guaranteed Asset Protection, or GAP insurance for their car and end up paying for a loan on something that is damaged, or worse, totaled.
You know, lenders do not particularly care about the reason for your loan, or what happens to what you purchased after your loan. It is none of their concern. The only thing lenders care about is the fact that you borrowed a loan and you are obligated to pay it back. Thus, this means, even if your car was totaled in an accident, you still have the responsibility to pay back the amount of your loan in full. This is not a pretty situation at all. This is where the importance of GAP insurance coverage comes into play.
Fact is that most people do not know that a new car starts to depreciate the moment it drives off the dealership?
The value of a brand new car can depreciate as much as 30%, in extreme cases, within a couple of weeks of leaving the dealership, when it starts to be a working vehicle rather than on display. Even if your insurance provider is going to pay the current Kelley Blue Book value of the car when they write you a check to “total” the car, you still need to pay that 30% from your own pocket. The purpose of GAP insurance is that it will cover that 30% and clear you out from the transaction. No surprise that many insurance companies require borrowers to get Guaranteed Asset Protection as part of their contract.
Consider this; if you got into an accident and you do not have Guaranteed Asset Protection insurance, you are going to be left with the hassle of a loan payment that is consuming your resources. Most probably, you will not be able to get another car or any vehicle until the damaged one is completely paid off. This is a pretty bad situation all in all. No car and no money to get a new one. Getting GAP insurance might not be able to help you get another car, but it will give you greater chances of borrowing another loan when everything is settled.