Guaranteed Auto Protection (GAP) - Less Expensive at the Credit Union

Members financing new and used automobiles are faced with multiple financial decisions that are connected with the vehicle purchase. One of these decisions is Guaranteed Auto Protection, known as GAP coverage. Will your insurance company payoff your outstanding loan balance if your vehicle is deemed a total loss? GAP coverage is designed to payoff any remaining balance that might exist after a total loss claim by an insurance company. Unfortunately, vehicles as a general rule are not very good investments. They decline in value rather quickly the first few years and more gradually with each additional year. Insurance companies have a wide array of resources in determining the current market value of a vehicle that has been deemed a total loss. The remaining loan balance is not one of those resources. If a member has a vehicle with a $15,000 payoff balance and the insurance total loss claim is only $12,000, that member now has a $3,000 deficiency balance that they are still responsible for. If GAP coverage had been purchased, that $3,000 balance would be paid for by the GAP provider.

Does every vehicle financed need GAP coverage? No. Vehicles with a modest down payment and a good depreciation history would most likely not need GAP coverage. A "Visual GAP" report is available to predict any anticipated GAP balance over the amortized life of the loan. Loans where a trade-in has been involved or 100% retail financing provided are the best candidates for GAP coverage. Again, the "Visual Gap" report is the best tool to make an informed decision on whether to purchase the GAP coverage.

What does GAP cost? This is where financial education on this product is extremely valuable. North Alabama Educators Credit Union sells our GAP protection plan for a flat $195.00 fee per covered loan. Automobile dealers are routinely charging anywhere from $500.00 to $700.00 and higher for GAP plans and enjoying an incredible profit in the process. The credit union has refinanced automobile loans for members who have seen a refund of $400.00 or so by cancelling the GAP plan they purchased at the dealership. Keep in mind that most GAP plans are financed in with the vehicle loan so interest is also being paid on top of the cost of the GAP plan.

Anyone considering a vehicle to be financed is encouraged to check with the credit union first about our available loan rates and associated products like GAP protection. Remember that our objective is to provide a good financial value back to the member-owners of the credit union. Research into the costs of financing and protecting a vehicle purchase BEFORE negotiating a deal is the best advice for securing a good financial transaction.