Should I get gap insurance for a used car?

Asking should I get GAP insurance for a used car? Guaranteed Auto Protection (GAP) insurance is extra protection for your vehicle in case you have an accident that leaves the vehicle as a total loss. If the vehicle is worth less than what you owe at the time of the accident, GAP insurance will help whether you bought the car new or used.

While it is not worth it to get GAP insurance on all used vehicles, there are some instances where you should consider carrying GAP insurance on your used car, such as if you have a long loan term. 

Ready to compare major insurance companies that offer GAP insurance? Enter your ZIP code into our free quote comparison tool to find affordable GAP insurance.

When to Consider Gap Insurance for Used Cars

When you buy a new car, gap insurance is typically recommended. That’s because when you buy a new car, it ceases to be new as soon as you drive it off the car lot. 

A new vehicle’s value typically depreciates by 15-25% the first year, and much of that happens right when you drive it off the lot. Unless you put down more than 25%, your loan balance could almost immediately be greater than the vehicle’s value. 

With used cars, though, there is more to consider.

Age of the Vehicle

The rate of depreciation tends to be lower in each year of a car’s life. This means that if you buy a six-year-old car with a loan, it may not be worth adding gap insurance as your loan balance will generally keep up with the depreciation rate.

For older vehicles, the amount you pay for gap insurance is likely to outweigh the difference between the vehicle value and the amount remaining on the loan if you were to experience a total loss accident. 

For cars three years old or newer, though, gap insurance may be a wise investment.

Length of Loan Term

Another determining factor is the length of your car loan. If you purchase a vehicle that is less than three years old with a loan term greater than 60 months, then gap insurance could be a wise investment. 

This is because a longer-term loan means you are making lower payments each month, which often results in your vehicle’s value depreciating faster than you are reducing your loan balance. 

Smaller Down Payment

A down payment reduces the amount of your loan in relation to your vehicle’s value. If you put a lot down, it reduces your need for gap insurance on a used car. 

However, if your down payment is less than 20% and the vehicle isn’t very old, gap insurance could still be useful. The lower the down payment, the more useful gap insurance could be for you.

Importance of Gap Insurance For Used Cars

If your car is deemed a total loss in an accident, your full coverage auto insurance policy will typically pay out the value of the vehicle. 

When you have a loan, this payout goes to the lender first. However, if the value of the vehicle is less than your loan balance, you’ll owe the difference. But with gap insurance, this amount will be covered so you don’t have to pay out of pocket.

Here is a scenario:

• Imagine your vehicle is totaled and you still have $8,000 left on your loan. 
• Your insurance company values your car at $6,800, so that’s the maximum amount it will pay your lender. 
• That still leaves you with $1,200 remaining on your loan balance.

If you have gap insurance, that $1,200 will be taken care of by your insurer.

How to Get Gap Insurance on a New or Used Car

When you buy a new or used car, the dealership is likely to offer you gap insurance. This can be built into your financing terms and is the simplest way to add gap coverage on a used car.

However, buying gap insurance through your dealership is often more expensive than what you could get through a regular insurance company.

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Many car insurance companies, such as Allstate and Nationwide, offer gap insurance. You can read our Allstate auto insurance review and Nationwide auto insurance review for more information about the companies. 

You may also be able to add gap insurance right onto your current car insurance policy. If not, you may want to shop around for insurance companies that offer gap coverage.

The Final Word on Gap Insurance For Used Cars

Having gap coverage on a used car may be helpful under the right conditions. Gap coverage is worth considering if your vehicle is three years old or newer, your loan term is more than 60 months, and/or your down payment is less than 20%.

If you meet these criteria, it’s worth weighing your options for adding gap insurance to your used car.

As you know, comparing auto gap insurance online is worth it. Compare used car gap insurance rates right now by entering your ZIP code into our free auto insurance rates tool.