Protect Your Investment: Add GAP Insurance When You Refinance Your Car

Dakota DeRego
Jun 16
2 min read

When you refinance your auto loan, it’s the perfect time to take a closer look at your coverage—especially GAP insurance. Guaranteed Asset Protection (GAP) covers the “gap” between what your car is worth and what you still owe if it’s totaled or stolen. Regular insurance pays the actual cash value (ACV), but GAP covers the shortfall, which could be thousands of dollars, depending on your loan balance and vehicle depreciation.

GAP insurance is especially important if your loan-to-value (LTV) ratio is high, or you made a small (or zero) down payment. Cars lose 10–20% of their value as soon as they leave the lot, and if you owe more than the car is worth, you're at financial risk. That’s where GAP comes in:

Covers negative equity in case of a total loss
Prevents out-of-pocket costs after an accident
Gives peace of mind in high-risk lending situations
Recommended for loans longer than 60 months or with LTVs over 100%

If you previously purchased GAP insurance through the dealership, you may be overpaying. Dealership GAP plans are often marked up, include cancellation fees, or offer less flexible terms. When you refinance, you can cancel your original GAP and replace it with a better policy—often for half the cost. The new GAP policy can be built into your refinanced loan, so it’s seamless and fully protects your new lender.

Good news: if you had GAP on your previous loan and you're refinancing, you could be entitled to a prorated refund. Most GAP contracts allow cancellation if the loan is paid off early—which is exactly what refinancing does.

Here’s how to claim your refund:

Contact your original lender or GAP provider with proof of refinance
Request a cancellation and refund form
Submit within the contract’s refund period (typically 30–90 days)
Apply refunded funds toward your new loan or pocket the savings

Adding or upgrading your GAP coverage during a refinance isn’t just smart—it’s a vital part of protecting your financial future. It’s easy to overlook until disaster strikes, but when you’re already going through the refinance process, it only takes a few extra steps to lock in this important protection. Don’t let your investment go unprotected—make GAP part of your plan.