Choosing GAP insurance when you have a PCP loan
Car finance, or Personal Contract Purchase (PCP), is currently the most popular way to pay for a new or used car. However, if the car is written off or stolen, you may find that your comprehensive insurer won’t pay out enough to cover the remainder of your monthly payments. This is where GAP insurance comes in handy, and a Back to Invoice Plus or Vehicle Replacement Plus policy is most suitable.
Return to Invoice Plus, also known as Back to Invoice Plus, will pay the difference between your car insurer’s settlement and the original invoice price, if you have paid outright. If you have a PCP loan, you will either receive the original invoice price or the remaining monthly payments, whichever is higher at the time of claim. There is a limited time to purchase GAP insurance after getting your car, so if you miss the deadline for these GAP insurance policies, you may still be able to buy Agreed Value GAP insurance, but this won’t cover finance payments.
Which policy is best for you depends on a number of factors. Vehicle Replacement GAP insurance policies are more suitable than Return to Invoice if you are worried about the cost of a replacement car being higher. This way, if your car is written off or stolen, your GAP insurance cover will meet the cost of a new replacement vehicle rather than the original invoice price. If the car is not brand new, it will be a same-age replacement.
To find out more about GAP insurance policies for PCP loans, and whether they apply to new and used cars, you can read our previous guide here.
Can you get GAP insurance when you have a personal loan?
Personal loans are often used to pay off credit card debt and make large payments such as home refurbishments, but they can also be used to fund your next car. Certain elements are taken into consideration before you can qualify for a personal loan, such as your credit score and income. If you take out a GAP insurance policy for a car bought with a personal loan, the same policies that you would choose for a car on finance would be recommended (Back to Invoice Plus or Vehicle Replacement Plus).
Getting GAP insurance for a car financed with a personal loan is incredibly important for a number of reasons. For example, with recent increase to interest rates for personal loans, people could feel that extra strain on their finances should you need to pay back your car loan if your car is declared a total loss. Also, GAP insurance protects drivers from any financial shortfall between the car insurer’s settlement and the original invoice price of the vehicle.
Choosing GAP insurance when you have a contract hire agreement
If you want to drive a brand-new car without having to buy it outright, then a contract hire (or leasing) might be the better choice. If you have funded your car this way, the only GAP insurance policy you will qualify for is Contract Hire GAP insurance.
A Contract Hire GAP Insurance policy will cover any shortfall in the market value settlement/settlement provided by your comprehensive insurer. Additionally, you can opt to cover your initial deposit up to £3000. GAP insurance can enable you to settle your contract hire agreement easily should your car be declared a total loss, covering your liability. This leaves you free to get a brand-new car without having to worry about any debt from the previous agreement.
Do you need GAP insurance for cars bought outright?
Although it is declining in popularity, buying cars outright privately or from a VAT registered dealership with cash is still a preferable option for a lot of people. If you have recently bought your car outright from a dealership or garage, Back to Invoice Plus policies or Vehicle Replacement Plus policies are the best choice. Cars depreciate quickly, and buying upfront can often be considered a bad investment as you will probably never get back how much you initially paid. Back to Invoice GAP insurance will cover the shortfall between your comprehensive insurer’s settlement and the original invoice price of your vehicle, so you won’t be out of pocket should your car be written off or stolen.
Agreed Value GAP insurance can be bought for cars paid for outright from a private seller. They follow the same rules as Back to Invoice Plus policies, except the value of your vehicle at the time the policy was purchased (according to Glass’s Guide) will be referred to. Agreed Value GAP insurance policies also apply to cars bought from dealerships if they have not met the time frame for Back to Invoice or Vehicle Replacement policies.
How does negative equity work with GAP insurance?
Negative equity is a common term used in the housing market; it applies when an investment, such as a house, is worth less than its outstanding balance. Negative equity is commonly seen in financed cars, as they can often end up being worth less than the remaining balance that needs to be paid.
If your car is written off and you are in negative equity due to depreciation of the car, a high interest rate on your agreement, or both, Back to Invoice Plus and Vehicle Replacement Plus GAP policies will cover this additional shortfall to ensure you’re not out of pocket. An Agreed Value GAP policy will not.
However, negative equity due to finance being carried over from a previous agreement is rarely covered by GAP insurance. If you are unsure whether a policy will cover this, you should always contact the policy provider to check.
How ALA can help
All of our GAP insurance policies here at ALA are competitively priced and are designed to cover you should the worst happen to your car. To find out more about our various GAP insurance policies, or to receive a quote for your car, please get in touch with us via our website today. You can also start building your bespoke quote here.