GAP coverage, also known as Guaranteed Asset Protection or Guaranteed Auto Protection has been available to consumers and lenders since the early 1990s. However, due to the current economic conditions its benefits to consumers and lenders have never been more crucial than it is now. There are many reasons for loan officers to consider making GAP a recommendation to their borrowers.
Let’s start by defining why GAP is needed. Standard auto insurance policies cover the depreciated value of a car—in other words, a standard policy pays the current market value of the vehicle at the time of a claim. In the event of an accident and the vehicle is totaled or a theft, gap insurance covers the difference (up to a stated limit) between what a vehicle is currently worth (which standard insurance will pay) and the amount a borrower actually owes on it. This is valuable for the borrower and the lender.
The advantages to the borrower in having Guaranteed Asset Protection are evident when negative equity exists. Lenders benefit by realizing increased ancillary income (in most states you can add on a lender fee to the GAP cost) and lower loss exposure. Most Gap plans also cover the borrower’s deductible and some offer an additional payment after a Gap claim occurs if the borrower finances a replacement vehicle with you which increases customer retention.
Current statistical data suggests that GAP programs are more valuable now than ever before.
Here are some of the most telling statistics:
Term lengths and loan amounts are expected to continue to rise in the coming months and used auto values have declined as the economy struggles to rebound from the pandemic. This means GAP amounts are on the rise.
When financing an auto loan for a borrower it is important for a lender to recognize when it makes sense to recommend GAP coverage. In general, you should try to identify when the amount owed may be close to or greater than the value of the vehicle. Here are some of the most common situations borrowers find themselves in where a lender should consider recommending GAP coverage:
As the data shows, there are more vehicle loans with negative equity than ever before. Now could be the time borrowers and lenders need GAP Protection the most. Here is an illustration of how GAP works. A the time a vehicle was totaled, the borrower owed $19, 389 but the it was only worth and insured for $14, 274, leaving a gap of $4,972 for the lender and the borrower to deal with. This was an actual claim that was paid by our GAP product. Read on to find out more about the benefits of GAP protection for both the borrower and the lender.
Frequency and Size of Auto VSI and GAP Claims Remain High
Benefits of GAP coverage for borrowers, lenders, and dealers:
Borrower Benefits
Lender Benefits
Auto Warranty Products Keep Borrowers Whole While Protecting your Assets
Dealer Benefits
It's more import than ever for Lenders to have Control Over Gap Waivers they Finance. Unitas Financial Services can help you explore asset protection solutions like GAP to help keep your borrowers and your bottom line whole.
Sources: LendingTree.com, CarandDriver.com, MarketWattch.com