Is GAP insurance worth it on a used car?

Is GAP insurance worth it on a used car? Learn what it covers, when it might be useful and when you could save your money.



When you buy a used car, you might be offered a few extras. These could include extended warranties, service plans or GAP insurance.

But do you really need them?

GAP insurance is one of the more confusing extras. It can be useful in certain circumstances, but it's not necessarily something every used car buyer needs.

Here at Zoomo in Newcastle upon Tyne, we believe it's important to understand what you're paying for. So, let's look at what GAP insurance does, how it works and whether it's worth considering when buying a used car.

What is GAP insurance?

GAP stands for "Guaranteed Asset Protection". It's a type of insurance that can help protect you financially if your car is stolen and not recovered, or written off following an accident.

Here's why you might need it.

When an insurer writes off your car, it will generally pay you what the car was worth immediately before the loss, subject to your policy terms. This is known as its "market value".

But that amount might be less than you originally paid for the car. It could also be less than the amount you still owe on finance.

GAP insurance can help cover the difference.

For example, imagine you buy a used car for £12,000. Two years later, it's written off in an accident.

Your insurer values the car at £8,000 and pays you that amount. That leaves a £4,000 difference between the insurance payout and what you originally paid.

Depending on the type of GAP insurance you have, you might be able to claim some or all of that difference.

Without GAP insurance, you'd receive the standard insurance payout. However, you wouldn't have that additional protection against the car's loss in value.

What are the main types of GAP insurance?

Not all GAP insurance policies work in the same way. Some are designed to protect the money you borrowed, while others help cover the cost of replacing your car.

Here are five types you might come across.

Return to invoice (RTI)

Return-to-invoice GAP insurance helps cover the difference between your insurer's payout and the price you originally paid for the car.

For example, if you paid £12,000 and your insurer paid out £8,000 after a write-off, an RTI policy could cover the £4,000 difference. (Keep in mind that's subject to its terms and claim limits, though.)

Vehicle replacement insurance (VRI)

Vehicle-replacement GAP insurance helps cover the difference between your insurer's payout and the cost of buying an equivalent replacement vehicle.

This can be useful if the cost of replacing your car has increased since you bought it.

Finance GAP

Finance GAP insurance is designed for people who buy cars on finance.

Imagine your car is written off or stolen and your insurer's payout doesn't cover what you still owe on your finance agreement. This type of policy could help pay the shortfall.

However, it doesn't usually provide extra money towards buying another car.

Contract hire or lease GAP

This type of GAP insurance is designed for leased vehicles.

If the car is written off, it can help cover eligible financial liabilities under your lease agreement that aren't covered by your standard insurance payout.

Exactly what's included depends on the policy.

Return to value (RTV)

Return-to-value GAP insurance uses the car's value when the GAP policy begins, rather than necessarily using its original purchase price.

This can be useful in certain circumstances, such as when you've already owned the car for some time before taking out cover.

Is GAP insurance worth it on a used car?

It can be, but it isn't always necessary.

One reason is depreciation. Cars generally lose value fastest when they're new, particularly during their first few years.

When you buy a used car, someone else has already experienced some of that initial loss in value. Depending on the vehicle, its value may then fall more slowly.

That can reduce the difference between what you paid and what your insurer might pay out if the car is written off.

However, used cars still depreciate, and some lose value faster than others. Whether GAP insurance is worthwhile depends on the car, your finance agreement and the protection you already have.

When might GAP insurance be useful?

GAP insurance may be worth considering if:

• You've paid a small deposit. You may owe more on your finance agreement than the car is worth, particularly early on.
  
  
• You've chosen a longer finance agreement. You could remain at risk of owing more than the car's value for longer.
  
  
• Your car is likely to lose value quickly. Some used cars depreciate more rapidly than others.
  
  
• You want protection against losing the original purchase price. Return-to-invoice GAP insurance may be useful if you want to recover more than the car's market value after a total loss.
  
  

For example, imagine you still owe £9,000 on your car finance agreement, but your car is now worth £7,000.

If the car is written off and your insurer pays £7,000, you could still owe £2,000 to your finance provider.

A suitable finance GAP policy could help cover that shortfall, subject to its terms and limits.

When might you not need GAP insurance?

GAP insurance may be less useful if:

• You've paid a large deposit. This can reduce the likelihood of owing more than your car is worth.
  
  
• You're paying off your finance quickly. Your outstanding balance may fall faster, reducing the risk of a shortfall.
  
  
• You already have suitable protection. Some comprehensive car insurance policies offer new-car replacement benefits in certain circumstances. However, these may not apply to used cars.
  
  
• You could comfortably cover the shortfall yourself. You might decide the extra insurance premium isn't worthwhile given your financial circumstances.
  
  

If you've bought your car outright, finance GAP insurance won't be relevant because there's no outstanding finance to protect. However, other types of GAP insurance may still be worth considering.

How much does GAP insurance cost?

The price depends on factors such as your car's value, the policy type, the length of cover and the insurer.

Before buying, check what the policy actually covers, how much you can claim and what exclusions apply.

It's also worth shopping around. You don't necessarily have to buy GAP insurance from the dealership where you purchase your car.

And remember that GAP insurance is optional. You shouldn't feel pressured into taking it out simply because you're buying a car on finance.

How we can help

At Zoomo, we believe buying a used car should be straightforward. That means helping you understand your options and find a car and finance arrangement that suits your circumstances.

We're based in Newcastle upon Tyne and work with a panel of lenders to help customers explore their car finance options. That includes people with less-than-perfect credit histories.

Every eligible car also comes with a three-month RAC warranty as standard, helping protect against specified mechanical and electrical faults. If you'd like longer-lasting repair protection, we can explain the optional extended warranty cover available through Zoomo Protect.

These warranties are different from GAP insurance, but they're part of understanding the protection available when buying a used car.

Looking for a quality used car in Newcastle with finance options to suit your circumstances? Explore our available vehicles or apply for finance online today.