GAP Insurance (Guaranteed Asset Protection)

GAP insurance, short for guaranteed asset protection, is an optional product sold with many car loans and leases. The Consumer Financial Protection Bureau explains that it is intended to cover the difference between the amount you owe on your auto loan and the amount your insurance company pays if the car is stolen or totaled. Because cars lose value quickly, especially with a small down payment or a long loan, many borrowers owe more than the car is worth for the first few years.

GAP is usually sold by the dealer at the time of purchase, and its cost is often rolled into the loan, so you pay interest on it. It is optional: you do not have to buy it to get a car loan, and you can often buy similar coverage for less from your own auto insurer.

The CFPB has reported that some auto loan servicers engaged in unfair practices by failing to request refunds of "unearned" GAP fees and failing to credit those refunds to borrowers' accounts after repossession or early payoff. If you pay off, refinance, or trade in a car early, or if the car is repossessed, you may be owed a prorated refund of the GAP premium. Class actions have challenged lenders and dealers that did not pay these refunds, as well as GAP providers that denied or underpaid claims after a total loss.

If you had GAP and your loan ended early, check your contract for the cancellation and refund terms and ask the lender or GAP administrator in writing for your refund. Keep the payoff letter. Our pages on total loss car payouts and the State Farm total loss settlement cover related disputes.