What Is Gap Insurance?
If your car is written off or stolen, standard insurance pays the current market value — not what you paid or what you still owe. Gap insurance covers the 'gap' between the insurance payout and your outstanding loan balance.
When You Need It
If you financed more than 80% of the purchase price, have a long loan term (5+ years), or bought a new car that depreciates faster than you're paying it off. In these scenarios, you could owe more than the car is worth for the first 2-3 years.
When You Don't Need It
If you paid cash, made a large deposit (40%+), or bought a vehicle that holds value well (Toyota/Subaru). If your loan balance is always below the vehicle's market value, gap insurance provides no benefit.
Cost
Typically $300-600 for the loan term. Some lenders include it automatically — check your loan contract. It can be added at any time during the loan, not just at purchase.