What is a gap waiver?

“GAP” is an acronym for guaranteed asset protection. A gap waiver, also known as a gap addendum, is a supplement that you can add to your auto loan or lease. A gap waiver is a debt cancellation agreement which absolves you from paying the difference between what you owe on the vehicle and what it’s worth if the vehicle is declared a total loss. Some lenders require the waiver and you’ll pay for it up front, but if it isn’t required, you may purchase some form of gap coverage through the auto dealership or your auto insurer.

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How does a gap waiver work?

If your vehicle is damaged in an accident and can’t be repaired or is stolen, a gap waiver waives the balance left on your vehicle loan up to a certain amount. The maximum amount waived varies, depending on your lender or lease company.

Pro tip:

EXAMPLE: Your car collides with a guardrail and is totaled. The actual cash value of the vehicle is $15,000, so your insurer may pay you $15,000 if you have auto collision coverage, minus your deductible. However, your loan balance is $17,500. A gap waiver may cover the $2,500 left on your auto loan.

Where is the gap waiver number?

The gap waiver number is 11 to 13 digits long and can include both numbers and letters. Check the contract you signed when you leased or financed your car to see if you can find the number there. If not, get in touch with the dealership or lender you went through when getting the car.

What's the difference between a gap waiver vs. gap insurance?

A gap waiver and gap insurance coverage function similarly — they cover the difference between what you owe and the car's actual cash value (ACV) in the event the vehicle is totaled or stolen. While the waiver is attained through your lender or lease company, gap coverage is typically an added coverage on your auto insurance policy or available through the dealership that sold you the vehicle. While a gap waiver typically covers the entire balance between what you owe and the car's worth, gap coverage on your personal auto insurance policy may be limited to a certain percentage of the vehicle's value.

Should I choose a gap waiver or gap insurance coverage?

If your lender or lease company doesn’t mandate a gap waiver, you may save money by purchasing gap coverage through your auto insurer instead of the car dealership or your lender/lease company. Progressive offers loan/lease payoff coverage, which is similar to gap coverage. The main difference is that the payout for loan/lease payoff coverage is limited to no more than 25% of your vehicle's value, though the exact limit varies by state.

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