Why does my loan contract have a gap addendum listed on it?

I'm about to purchase a new car and noticed that my finance agreement has a gap addendum listed on it. What does that mean?

Answer
“An addendum means an addition to something. Most lenders identify gap addendums as contracts for gap insurance. When added to a finance agreement, it amends the agreement to include gap insurance.
You now have gap insurance on your vehicle. Gap insurance will pay the difference between the actual cash value of your vehicle and the amount you owe on your loan if you’re in an accident.
As it is common for vehicles to lose value rather quickly when first purchased, gap insurance provides extra protection to ensure you aren’t paying for the remaining balance of your loan out of pocket. If you don’t have an emergency fund or thousands of dollars on hand, it’s actually a smart product to have.
If you’re looking for car insurance on your new ride, make sure to shop around. Download the Jerry app to compare dozens of rates from over 50 car insurance companies.”
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Emily Maracle
Answered on Aug 16, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.
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