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Games Dealers Play: Should Consumers Buy GAP Protection?

GAP protection covers the scenario where a motor vehicle is totaled in an accident or stolen and not recovered. Insurance will pay for the retail value of the car minus the deductible. If that is not enough to pay the car loan, the consumer is responsible for the difference. If a consumer has GAP protection, they theoretically will not have to pay that difference (but, read on - many consumers learn that they do not have the protection that they think that they have). The term "GAP", which evokes the image of a gap between the insurance payout and the outstanding loan balance, is sometimes used as an acronym for product names such as "Guaranteed Asset Protection" or "Guaranteed Auto Protection".

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Many consumers have complained that car dealers have required them to purchase GAP in order to be approved for financing. If a dealership requires GAP, they have almost always violated a number of state and federal laws, and any consumer who is required to buy GAP should consult with an attorney.

But, should consumers who are properly given a choice in the matter buy GAP protection? In our experience, GAP is a poor investment. If a consumer does not overpay for a car and turns down various "extras" pushed by dealerships, then they will have lower loan balances. And, since their loan balances are lower, the amount that their insurance will pay will probably be enough (or very close to enough) to pay the loan. So, the loss that GAP protects against is usually not very much. Additionally, the risk of a car being totaled in an accident accidents is very small: about 1 out of 250 cars are totaled each year. Yet, many consumers pay $600 or more (when interest is included) for GAP protection. Given the chances of a car being totaled and cost of GAP is much too high.

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Worse yet, many consumers discover only too late that their GAP contracts do not provide the protection that they expected. Some contracts limit the amount of "gap" covered, and if a dealership seriously overcharges for a car, the consumer is stuck. Other consumers who submitted claims under GAP contracts have complained that they were harassed for payment and had negative information reported on their credit.

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Our advice: don't buy GAP. If you already bought GAP, look at your contract to see whether you can cancel it for a full or partial refund. Yes, some consumers do receive benefits under these contracts, but those occasions are rare, and far more frequently, purchasers of GAP overpay for a largely worthless product.

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