Is gap insurance worth it on a used car?

When buying a used car, there’s a lot of decisions to make, from choosing the right model to sorting out your finance options.🤔

Something else you may not have considered is whether to opt for GAP insurance.

This type of insurance can be a game-changer in certain situations, but it’s typically taken out on new cars.

If you’re looking at whether it’s worth taking out GAP insurance on a used car, we’re here to help.😀

Below, we’ll explore what GAP insurance is, how it works, and most importantly, whether it's a worthwhile investment for your used car.👇

What Is Gap Insurance?

GAP insurance (Guaranteed Asset Protection) is a type of cover that ensures you aren’t left out of pocket when making a claim.

It is designed to cover the 'gap' between the amount you paid for your car and its value at the time of the claim.

Regular car insurance typically only covers the current market value of the vehicle. This can be significantly less than its purchase price due to depreciation.

This type of insurance is especially ideal if you finance your car with either PCP or hire purchase loans.

Without GAP insurance, you may end up still paying off a finance agreement on a car you no longer have. Or you could receive a payout that’s less than what you owe.

Should I Get GAP Insurance on a Second-Hand Car?

Deciding whether to get GAP insurance on a second-hand car can be tricky. Here are some scenarios where it could be beneficial:

• If you have a long-term finance agreement
• If you put down a small deposit
• If you’re purchasing a model known to depreciate rapidly
• If you drive a lot, which could lead to higher-than-average depreciation

While GAP insurance isn't a one-size-fits-all solution, it's worth considering under these circumstances to protect your investment.

Examples of How GAP Insurance Works

GAP insurance can be a financial lifesaver in certain situations, particularly when the unexpected happens.

Understanding how this insurance works in real-life scenarios is key to appreciating its value. Here’s some examples:

Theft

In the event of theft where your car isn’t recovered, regular car insurance will typically pay out the current market value of the vehicle.

If this amount is less than what you owe on your car loan, GAP insurance covers the difference.

Accident

If your car is involved in an accident and declared a total loss, GAP insurance can be invaluable.

It covers the gap between the insurance payout (based on the car's current value) and the remaining balance of your finance agreement.

Rapid Depreciation

Cars can depreciate rapidly in the first few years.

GAP insurance ensures you’re not left with a financial shortfall if your car is written off and its market value has decreased significantly.

When Isn’t It Worth Taking Out GAP Insurance on a Used Car?

While GAP insurance can prove beneficial, you might not need it, depending on your situation.

If you’ve bought a used car that has already undergone significant depreciation, the gap between its purchase price and current value may be minimal.

Similarly, if you’ve made a large down payment or have a short-term finance agreement, the financial risk is lower.

Also, if you have enough savings to cover the potential ‘gap’ or are comfortable taking the risk, you won’t need GAP insurance.

Just like you’d calculate the cost of a car loan, we recommend working out the cost of GAP insurance before deciding.

Get a Used Car on Finance with Carmoola

Thinking of buying a used car on finance? Consider applying with Carmoola.

We offer some of the lowest rates on the market, an easy application process, and fast approval.

Get car finance that fits your needs and your budget and apply with Carmoola today.😎🚗

Read more about insurance and car finance:

• A Complete Guide to GAP Insurance for Cars
• Do I Need GAP Insurance for My Car?
• How Much Does Car Gap Insurance Cost?