WHEN GAP COVERAGE DOESN'T COVER EVERYTHING

When buying a new car, a lot of people do not consider paying for GAP insurance. Instead, they purchase the standard automobile insurance they would typically buy, drive the car home and never realize that if that car were totaled that night, they would end up owing money on the car. This is because the act of just simply driving the car off the lot diminishes its value as compared to the price you just agreed to pay. Consequently, new car buyers will often obtain GAP coverage, which stands for Guaranteed Auto Protection, to cover the difference between the loan on the car and what the car is worth. 

However, sometimes when you buy your new car, you still owe money on the car you are trading in. In an effort to speed things along, the helpful car salesman and dealership will roll the amount you owe on the other loan into your new loan. That is great if you think about it in terms of having just one payment to deal with. However, GAP insurance does not cover what you owed on your old loan. Therefore, when you get into that accident and your new car is totaled, you could end up paying off the loan for the new car but still be left with a few thousand due depending on the size of your prior loan that was rolled over.