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Choosing GAP insurance when you have a PCP loan

19 September 2023

Written by Katie Rollin

|  5 Minutes

GAP insurance is a great option for most drivers, no matter whether you have purchased your car upfront, taken out a contract hire deal or opted for a finance agreement. If you’ve chosen the latter, GAP insurance (Guaranteed Asset Protection insurance) is a great choice for protecting your investment should your car be declared a total loss (written off or stolen). PCP (Personal Contract Purchase) is the most popular way to finance a car, so GAP insurance is worth considering alongside your agreement.

In this guide, we will explore how GAP insurance works in terms of car finance, which policy would work best for you and whether GAP insurance covers both new and used cars on PCP finance loans. We will also explore the benefits of GAP insurance for cars on PCP finance loans, and how we can assist you.

How does GAP insurance work on a financed car?

There are two types of GAP insurance that benefit car finance deals; Return to Invoice Plus (also called Back to Invoice Plus) and Vehicle Replacement Plus if your car is written off following an accident or theft. Return to Invoice Plus policies will pay the difference between your car insurance company’s settlement and the original invoice price of the vehicle or the outstanding finance balance, whichever is higher at the time of claim.

Vehicle Replacement Plus policies will cover the difference between your car insurance company’s settlement and the cost of a replacement vehicle of the same age, make, model and specifications as the car originally purchased if this is higher than the outstanding balance of your vehicle finance payments.

If your vehicle does not meet the requirements for these policies, for instance, if it is too old or you have waited too long to acquire a GAP policy, Agreed Value GAP insurance could be the policy for you. You can use our GAP insurance quote builder to determine which policy will suit you best.

Which GAP insurance policy is best for me?

The best policy for someone on a PCP car finance loan can depend on several factors, such as their personal circumstances, the level of cover they need, and the market value of their vehicle.

Return to Invoice Plus policies are considered the original GAP insurance policies and will cover any financial shortfall if your vehicle is written off or stolen, resulting in a total loss declaration. For example, if you financed your car from a VAT-registered dealer with an original invoice price of £20,000, and your motor insurer paid out £10,000, your GAP insurance policy would pay out £10,000, taking you back to the original invoice price. Or, you will receive the outstanding finance amount if this is more than the original invoice price at the time of claim.

Vehicle Replacement Plus policies go the extra mile; if your £20,000 car has increased in price by £3,000, your GAP insurer would pay out £13,000 to cover the cost of a new replacement of the same car if your car was new to begin with (an equivalent will be provided if it was used). However, like Back to Invoice, if the outstanding finance amount is higher, this will be paid instead. Vehicle Replacement Plus policies are higher in price due to their extra potential coverage.

Does GAP insurance cover new and used cars on PCP loans?

No matter whether your financed car is brand new or used, you will still be able to qualify for a GAP insurance policy. However, there are some requirements you must meet. On Return to Invoice policies, your car must be less than ten years old and purchased from a VAT-registered dealer. To qualify for a Vehicle Replacement Plus policy, your vehicle must be less than seven years old, and have completed less than 80,000 miles. It should also have been collected from a VAT registered dealer.

Although GAP insurance is more beneficial for new and relatively new cars, it could still save you money on a used car providing it meets the qualifying criteria above for your GAP insurance policy. In fact, the price of used cars is incredibly high right now (October 2022), so getting GAP insurance now is a smart idea. If you would like to discuss these restrictions further to find the best GAP insurance policy for you, please get in touch with us today.

What are the benefits of GAP insurance when you have a finance agreement?

If you purchased your car on a PCP agreement, GAP insurance can provide you with various enticing benefits. GAP insurance bridges the financial GAP between what your motor insurance company pays out and the original invoice price or the cost of a replacement vehicle. It also helps you pay off the rest of your finance payments if these are higher at the time of claim. When your car is written off or stolen, you shouldn’t have the extra worry of how you are going to pay for a new car, which is where GAP insurance can help you out.

With the cost-of-living crisis impacting all of us, GAP insurance can provide that much needed extra support if the worst should happen to your car. You can find out more about the benefits of GAP insurance here.

PCP GAP insurance with ALA

GAP insurance is available for most types of cars, no matter whether they were bought outright, financed or taken out on a contract hire agreement. If you took out a PCP loan to pay for your car, you can protect your investment should the worst happen. To enquire further about our GAP insurance policies, you can get in touch with us today.

Common queries

How long do you pay for GAP insurance for?

Our GAP insurance policies at ALA range from one year to four years; the longer the policy is, the more you will have to pay. However, if your car is written off or stolen during this period, your policy will end, and you will need to take out a new one on a new car. You can either pay upfront, or make monthly payments. The latter option costs slightly more, but it is only ten easy monthly payments.

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