Auto Loans 101: What is Payment Protection & GAP Coverage?

Whether you’re buying a new car or a car that’s new to you, it’s a big investment. As with any investment, it’s important to make sure you’re covered in case things go sour. Life happens, and it’s important that you’re ready in case things don’t go as planned.

Payment Protection on a Car Loan

A Payment Protection covers payments for your car loan for a predetermined amount of time should you not be able to make payments due to a job loss, illness or accident. Payment Protection will protect your credit rating, so it is worth checking in to. 

There are a number of factors to consider if a Payment Protection Plan is right for you:

  • Do I already have sick-pay insurance?
  • Would a Payment Protection Plan save me from financial distress or just discomfort?
  • Is there a better coverage plan available should I lose my income?
  • Do I have coverage through my job or professional association? 

The Member Service Representatives at Missouri Central Credit Union are here to advise you concerning Payment Protection plans for your auto loan. They know all the ins and outs- all of the factors you should consider before signing a Payment Protection Plan. Some of these considerations would be:

  • What will be the total cost of the insurance over the term?
  • What are all of the conditions of the loan? Will your illness be covered, for example?
  • Will you have to pay the insurance up-front?
  • What is the actual benefit for me?  Will it cover the full payment? 

At MCCU, our advice will be invaluable to you when considering a Payment Protection Plan; we will set you up with the best rates around when it is best for your unique financial situation.

What is GAP Coverage?

Typically, in the case of a totaled car your car insurance pays for the actual cash value (ACV) of your vehicle. Due to many factors, the ACV of your car may be less than what you owe on your auto loan. In those cases, you’re required to pay off the remained of your loan – that’s where GAP coverage comes into play.

While GAP protection covers the difference between the current value of your car and what you have yet to pay off, it is actually “guaranteed asset protection”. If your car is totaled or stolen, GAP coverage will supplement your payout settlement from your comprehensive or collision coverage. It will fill in the gap between the assessed value and what you owe. 

GAP coverage would be valuable when you purchase a new or newer car. Consider GAP Coverage when:

  • You placed a small (or no) down payment on a new car.
  • Your loan term is longer than 48 months.
  • You drive a lot causing your car to depreciate faster.
  • You have leased your car.
  • You bought a car that depreciates faster than most.  

Imagine your $30,000 new car (with only a $1,000 down payment), was totaled in an accident.  You still owe $29,000 but your collision insurance will only cover the ACV of $ 25,000. Now you are without a car and with a debt of $4,000. That is a hard pill to swallow and a prime example of why GAP insurance is worth it. 

Contact our Member Service Representatives at MCCU to calculate whether GAP coverage protection is right for you. Our professionals will show you a graph of your auto loan compared to your car’s current value to demonstrate if GAP coverage is right for you. We are here to provide financial services to protect your finances.

Apply for an Auto Loan Today!