Is GAP insurance worth it? Check your own loan.
GAP pays the difference between what you owe and what your insurer pays if the car is totaled or stolen. This shows how big that gap is for your loan, how long it lasts, and the cheapest way to cover it.
How this GAP insurance calculator works
The gap is what you owe minus what the car is worth. That is roughly what you would still owe your lender if the car were totaled today and your insurer paid its value.
The calculator then walks your loan forward one month at a time: the balance grows by a month of interest and drops by your payment, while the car loses value at the yearly rate you set. It reports the gap today, the largest gap ahead, and the month the gap closes. Once it closes, GAP pays nothing.
A gap that peaks under $1,000 is called optional, because many people could cover that from savings. Bigger gaps on a new car with little down are the classic case for GAP. For the value drop, new cars lose about 20 percent in the first year per Kelley Blue Book, and about 10 percent a year on average over five years per the iSeeCars study in our car depreciation statistics.
Worked example
Say you owe $32,000 at 7 percent with a $640 payment, and the car is worth about $27,000. The gap today is $5,000.
If the car loses about 15 percent a year, the gap peaks at about $5,000 and closes in about 28 months. GAP is worth having for that stretch, then you can cancel it.
Bought through your insurer at a typical $20 to $40 a year, that cover costs a small fraction of a $400 to $700 dealer price, per WalletHub's figures.
When GAP is worth it, and when it is not
- Worth it: little or nothing down, a loan of 60 months or longer, negative equity rolled in from your last car, or a model that loses value fast.
- Skip it: you put 20 percent or more down, you owe less than the car is worth, or your lease already includes it.
- Buy it from your insurer when you can. Dealer GAP is usually the most expensive route, and it is typically added to the loan.
Underwater already? The negative equity calculator shows how far and for how long, and the refinance calculator shows whether a lower rate would close the gap faster.
FAQ
What does GAP insurance cover?
If your car is totaled or stolen, your regular insurance pays what the car is worth, minus your deductible. GAP pays the difference between that and what you still owe on the loan or lease, so you are not left paying for a car you no longer have.
How much does GAP insurance cost?
It depends on where you buy it. WalletHub puts GAP added to a car insurance policy at about $20 to $40 a year, and GAP bought from a dealership at about $400 to $700, usually added to the loan so you pay interest on it too. See WalletHub's breakdown.
When can I cancel GAP insurance?
Once you owe less than the car is worth, GAP no longer pays anything, so you can drop it. The calculator above estimates when that happens. If you paid a dealer up front and sell or pay off the car early, ask about a refund for the unused part.
Do I need GAP insurance on a lease?
Check the contract first. Many leases include gap coverage or a gap waiver automatically, in which case buying it again is wasted money.
Can I buy GAP insurance after buying the car?
Often, yes, from your car insurer, but there are limits. Insurers commonly require that you are the original loan or lease holder and that the car is only two or three model years old, so ask soon after you buy.