How much does gap insurance cost?

Gap insurance — formally Guaranteed Asset Protection — pays the difference between what you still owe on your auto loan or lease and the car's actual cash value if it's totaled or stolen. Because a new car can lose 20% or more of its value in the first year, that gap can run into the thousands. The coverage is inexpensive; what varies enormously is *where* you buy it.

Two ways to buy it, two very different prices

• From your auto insurer (cheapest): Added as an endorsement to an existing policy, gap typically costs about $20–$60 per year, often quoted as roughly 5–6% of your combined comprehensive-and-collision premium, per the Insurance Information Institute. You pay it as part of your normal premium and can drop it once your loan balance falls below the car's value.
• From the dealer (most expensive): Sold in the finance office as a one-time product, dealer gap typically runs $400–$700 — and because it's usually rolled into the loan, you also pay interest on it over the loan term. The dealer's price often includes a markup the Consumer Financial Protection Bureau has flagged in auto-finance add-on reviews.

When gap coverage is worth the cost

Gap makes the most sense when you made a small down payment, financed for 60 months or longer, rolled negative equity from a previous loan into the new one, or leased. In each case you're more likely to owe more than the car is worth for a stretch of the loan. Once your loan balance drops below the car's value, the coverage no longer has anything to pay out — and that's the moment to drop it.