“When you purchase a new car, its value depreciates over time. This means you could pay $24,000 for your vehicle now, but it may only be worth $20,400 in a year. If your vehicle is in an accident and marked a total loss, you could end up owing more on your loan than what your insurance paid out.
Gap insurance covers this difference. While it may seem like an extra fee on an already large purchase, it can protect you if anything should happen to your vehicle.
Many car insurance companies offer gap insurance. You may be able to find a carrier that will sell you gap insurance for less than your lender’s cost of $12 a month.