What GAP covers
The CFPB describes Guaranteed Asset Protection as an optional product intended to cover the difference, the gap, between the amount you owe on your auto loan and what your insurance pays if your vehicle is stolen, damaged or totaled. Standard auto insurance only pays an amount up to the value of your vehicle.
| After a total loss | Amount |
|---|---|
| Still owed on the loan | $28,000 |
| Insurance payout, up to the car's value | $23,000 |
| Gap you would still owe without GAP | $5,000 |
The figures are inputs, not typical values. A gap exists only while the loan is larger than the car's value, so its size depends on the down payment, the term and how fast the balance falls; the car loan calculator shows the balance in each year of a loan.
Optional, and where to buy it
- Generally not required. The CFPB says you generally cannot be required to buy GAP, an extended warranty or credit insurance to get an auto loan, and that if the contract does not explicitly state it is required, you cannot be required to buy it.
- Check the contract for add-on charges before signing, and ask whether the loan includes optional products.
- Compare sellers. Dealers offer it at signing; your own auto insurer may offer a GAP policy and some direct lenders do too.
What financing it costs
The CFPB notes that financing GAP into the loan adds to the total loan amount and so to the interest. A $900 product financed at 8% over 60 months:
| Item | Amount |
|---|---|
| Price of the product | $900 |
| Added to the monthly payment | $18 |
| Interest paid on it over the loan | $195 |
| Total cost | $1,095 |
The price and rate are example inputs; the loan calculator runs the same arithmetic for any add-on.
Cancelling and refunds
The CFPB says you have the right to cancel optional add-on products at any time, and that you may be entitled to a refund if you sell, refinance or prepay your auto loan. When a loan ends early, ask the lender, the product provider or the dealer about the unused part. The guide car loan interest deduction covers the other money question on a new vehicle loan for 2025 to 2028.
This guide follows the CFPB's pages on GAP and on optional add-ons. Coverage terms, exclusions and prices are set by each policy and listed in its contract.
Frequently asked questions
What is GAP insurance?
Guaranteed Asset Protection, which the CFPB describes as an optional product intended to cover the difference between the amount you owe on your auto loan and what your insurance pays if the vehicle is stolen, damaged or totaled. It exists because standard auto insurance only pays an amount up to the value of the vehicle, which can be less than the loan balance.
Is GAP insurance required?
Generally not. The CFPB says you generally cannot be required to buy an extended warranty, GAP insurance or credit insurance to get an auto loan, and that if the contract does not explicitly state it is required, you cannot be required to purchase it. Ask the dealer or lender to show you where the contract makes it mandatory.
Where can I buy GAP insurance?
Dealers often offer it at purchase or lease time, but the CFPB notes that your own auto insurance company may offer a GAP policy and some direct lenders do too, so the price can be compared before signing.
Does financing GAP cost more?
Yes. The CFPB says that financing a GAP policy into your loan adds to the total loan amount, which increases what you pay in interest over time. A $900 product financed at 8 percent over 60 months adds about $195 of interest on top of its price.
Can I get money back on GAP insurance?
Possibly. The CFPB says you may be entitled to a refund if you sell, refinance or prepay your auto loan, and that you have the right to cancel optional add-on products at any time. Check with the lender, the product provider or the dealer.
Sources
- CFPB: What is Guaranteed Asset Protection (GAP) insurance? (an optional product to cover the difference between what you owe on the auto loan and what insurance pays; standard insurance only pays up to the vehicle value; your insurer or some direct lenders may offer it; financing it adds to the loan and the interest; refunds when you sell, refinance or prepay; the right to cancel optional add-ons at any time)
- CFPB: Am I required to purchase an extended warranty, GAP insurance, or credit insurance to get an auto loan? (generally you cannot be required; if the contract does not explicitly state it is required, you cannot be required to buy it; check the contract for add-on charges; cancelling can save money)
General information based on the sources above, not tax, legal or financial advice.