GAP (guaranteed auto protection) insurance is a must-have for people buying a car and using a loan to finance the cost. GAP insurance covers the difference between what your auto insurance will pay for your car if it is totaled in an accident and what is still owed on the loan.
For example, say you bought a $25,000 car and have paid off $4,000 on the loan; you get into an accident that totals the vehicle, but you still owe $21,000 on the loan. The auto insurance company is valuing the totaled car at $15,000, leaving a $6,000 balance owed to the bank. Without GAP insurance, you would be on the hook for the remaining balance.
GAP insurance often can be purchased through the financial institution that is providing the loan. It may also be available as an amendment to your auto insurance policy. Though it is a short-term policy, it can save you thousands if you are in a bad accident in the early days of owning your new vehicle.