How Does GAP Insurance Works?
Let's say you buy a new car for $30,000. You make a $2,000 down payment, take out a $28,000 loan, and set up monthly $400 payments.
Four months later, you owe $25,000 on the loan and your car gets totaled in an accident. Your insurer estimates the car's market value and only pays you $22,000 for your loss. That means you have a $3,000 difference or GAP between how much you owe on the loan and the amount you received from your insurance carrier. Plus you're still responsible for any deductible. Your GAP Insurance would cover that $3,000 difference for you and any deductible up to $1,000.