Bought your car on finance? If so, you might want to consider guaranteed asset protection (GAP) to protect you against depreciation. In this article, our experts explain what Gap cover is, and how our policy can help.
The rise of finance purchasing
When buying a new car, one of the key decisions you need to make is how to pay for it.
Buying outright was once the most popular means of purchasing a car, but alternatives methods have become increasingly popular in recent decades, including leases, contract hire purchases, and straight finance options.
In fact, according to 2023 data from the Finance and Leasing Association (opens a new window), 78% of new cars registrations in the UK were paid for using financing arrangements. When including purchases of used cars, we borrowed a total of £52 billion to pay for our cars in a single year – a staggering sum.
Why is Gap cover needed?
When you use finance to buy a car, your lender will charge you interest on the total cost of the purchase. This means that if your car depreciates from the point of sale, its value will be less than the amount borrowed plus interest, even as the amount you owe reduces over time.
Therefore, if your car is later written off following a collision or other incident, or stolen and not recovered, the sum you receive from your insurer may not be sufficient to clear the outstanding finance. This ‘gap’ is what’s covered if you choose to take out a Gap insurance policy.
Exactly how much you will be required depends on your lender, but the amount will probably be presented in the shape of an early settlement figure.
Not all vehicles will depreciate. Post-pandemic supply chain shortages have seen many mainstream models appreciate by as much as 30%, although the market has since begun to readjust. But as a rule, appreciation is rare for any car that isn’t a classic, specialist, or particularly high-end model.
What makes our policy different?
In the event of a claim, most motor insurance policies pay up to the car’s market value. They do not typically cover any shortfall between this sum and the amount owed to your lender.
Our policy offers benefits such as new car replacement and agreed value (opens a new window). However, even these can fall short when expensive balloon payments or long repayment periods are concerned.
That’s we also include Gap cover as standard, to ensure you’re comprehensively protected. That means you’ll receive the difference between the total loss settlement and any unpaid amount owed on a lease or financial agreement relating to your vehicle. *
Our policy provides you this cover on any vehicle or vehicles you insure through Lockton.
If you'd like to know more, reach out to a member of our team.
For more information on our policy, visit our Performance (opens a new window) page.
*Terms and conditions apply. Compensation is not available for overdue payments, charges for wear and tear or excess mileage, and any additional products purchased with the finance and carried-over balances from previous finance or leases.
