5 Things to Know About GAP Insurance Before You Refinance

Dakota DeRego
Jun 21
4 min read

Why It's Smart to Review Your Coverage When You Replace Your Auto Loan

When you're preparing to refinance your car loan, you're probably thinking about monthly payments, interest rates, and how much money you can save. But there's one important protection that often gets overlooked in the process: GAP insurance. If you financed your vehicle at a dealership, chances are you were offered a GAP policy—and it might be marked up, unnecessary, or outdated by the time you're ready to refinance. That makes refinancing the perfect moment to re-evaluate your coverage and make a smarter choice.

In this blog, we’ll break down five things you need to know about GAP insurance before you refinance, including how it works, why it matters more than ever in today’s market, and how to protect yourself without overpaying.

1. What GAP Insurance Actually Covers

GAP (Guaranteed Asset Protection) insurance covers the difference between what your car is worth and what you still owe if your vehicle is totaled or stolen. Let’s say you owe $18,000 on your auto loan, but your car is only worth $14,000 when it's declared a total loss. Your standard insurance will cover the $14,000—but you’re still responsible for the remaining $4,000. That’s where GAP insurance comes in.

Without GAP, you’d be left paying thousands on a car you no longer own. With it, that balance is covered.

This is especially important for borrowers who:

Made little or no down payment
Have long loan terms (60+ months)
Drive high-depreciation vehicles
Are currently underwater on their loans

2. Dealership GAP Policies Are Often Overpriced

Many drivers purchase GAP insurance at the dealership when financing their vehicle. But here’s what they don’t tell you: dealership GAP policies can cost up to 4–5 times more than plans offered through lenders or refinance companies. Why? Because dealerships often roll the cost into your loan, mark it up heavily, and treat it as a profit center.

Some policies also include extra fees or restrictive terms. Worse, if you refinance your auto loan, your old GAP policy may become invalid—which brings us to the next point.

3. Your Old GAP Plan Might Not Transfer

One of the biggest misconceptions about GAP insurance is that it stays with you for the life of the car. In most cases, GAP coverage is tied to the original loan. That means when you refinance your car loan with a new lender, your original GAP policy could be automatically canceled.

Refinancing is the perfect time to review your coverage and ask:

Is your old GAP plan still valid?
Have you been paying for something that no longer applies?
Could you get a better deal by switching providers?

At Digital Auto Refi Co, we help customers add new GAP coverage at the time of refinance—often at a much lower cost than dealership plans.

4. You Might Be Eligible for a GAP Refund

If your original loan included GAP and you're refinancing, you may be entitled to a partial refund on the unused portion of your GAP insurance. Many policies are prepaid, meaning you may have paid for several years of coverage in advance. If you refinance and cancel the original loan early, you’ve essentially paid for coverage you’re no longer using.

To claim a refund, you usually need to:

Contact your previous lender or GAP provider
Provide proof of refinance or loan payoff
Submit a refund request (within the refund window, often 30–90 days)

These refunds aren’t automatic, so it’s worth being proactive—it could mean a few hundred dollars back in your pocket.

5. Refinancing Is the Ideal Time to Add or Adjust GAP

If you didn’t originally purchase GAP insurance, or if your old coverage ended with your previous loan, refinancing gives you a clean slate. You can now shop for GAP coverage from a trusted provider, often at a better price and with terms that match your new loan.

Here’s why refinancing is the best time to revisit your GAP options:

You can roll it into your new loan without a big upfront cost
It’s easier to compare pricing from lenders vs. dealers
You’re more aware of your loan-to-value (LTV) ratio, which impacts your risk
You're already re-evaluating your finances—perfect timing for a coverage upgrade

At Digital Auto Refi Co, we offer competitive GAP options that can be bundled with your new loan, saving you both time and money. No hidden markups. No pressure sales.

Protect Your Car and Your Wallet with Digital Auto Refi Co

GAP insurance might not be the flashiest part of refinancing—but it could save you thousands in the event of a total loss. Whether you’re already covered, shopping for a better deal, or didn’t realize your original policy expired, now is the right time to take a second look.

When you refinance your auto loan with Digital Auto Refi Co, we’ll help you: