Gap Insurance: Refinance Or Not?

Gap insurance is a type of supplemental auto insurance that covers the difference between the amount you owe on a car loan and the car's value if it is stolen or written off. When you refinance a car loan, the gap insurance associated with the original loan ends, and you will likely receive a prorated refund for the remaining term. If you want to maintain gap insurance, you will need to purchase a new policy for the new loan. This may be necessary if you still owe more on your loan than your vehicle is worth, or if your new lender requires gap insurance.

When refinancing, should I get a new gap insurance policy?

When refinancing, you should consider getting a new gap insurance policy if your new lender requires it. Gap insurance is a type of supplemental auto insurance that covers the difference between the value of your car and what you owe on your car loan in the event of an accident, theft, or total loss. It is important to note that gap insurance is typically associated with a specific auto loan and cannot be transferred or reassigned to another loan, even if it covers the same vehicle. Therefore, when refinancing, your original gap insurance policy will end as your previous loan is paid off.

If you have paid your original gap insurance policy in full, you may be entitled to a prorated refund for the unused portion. To receive this refund, you will need to contact your gap insurance provider and provide proof of your refinance. Keep in mind that if you were paying your gap insurance in installments, you may not receive a refund.

When deciding whether to purchase a new gap insurance policy for your refinanced loan, consider the following:

• Does your new lender require gap insurance?
• If it is not required, what amount would your car insurance company pay out if your car was totaled? Compare this amount to what you owe.
• If you owe less than the car's value or the numbers are close, consider whether the cost of gap insurance is worth it.
• If you owe more than the vehicle's value, could you afford to pay the difference along with the costs of a new vehicle?

Additionally, it is worth noting that gap insurance is usually optional and not everyone needs it. It is typically recommended for drivers who have financed their car for a long period (60 months or more) or have made a small down payment or no down payment at all. In these cases, there may be a period where the amount owed on the vehicle is more than its current worth.

Can I get a refund on gap insurance after refinancing?

Yes, you can usually get a refund on gap insurance if you refinance, but only if you paid the full cost upfront. Gap insurance covers the difference between the actual cash value of your car and the amount you still owe on your lease or loan. It is usually taken out if you have a large car loan or a vehicle that depreciates quickly.

To get a refund on gap insurance after refinancing, you will need to:

• Wait until your initial loan is no longer in effect. When refinancing, you are essentially paying off the original loan with a new loan, so you will need to wait until the original loan is closed before you can get a refund.
• Gather your policy number and proof of your refinance.
• Contact your gap insurance provider. If your gap insurance is through your car insurance company, you may not be eligible for a full refund if the payments are made monthly. However, you may be able to get a prorated refund for the period you have already paid for. If you paid for gap insurance in full at the time of financing, you will usually be able to get a partial refund. The refund amount will be prorated, depending on how long you have had the coverage.
• Ensure you receive your refund. Gap insurance refunds usually take 4-6 weeks. Returning paperwork quickly and staying in touch with your provider may expedite the process.

Remember, you can only get a refund on gap insurance if you have paid in advance for the coverage and have not filed a claim against the policy.

What happens to gap insurance when I refinance?

When you refinance a car loan on a vehicle that has gap insurance coverage, you are essentially refinancing the loan on the vehicle, not the gap insurance. This means that the gap insurance policy is connected to the original loan, and when that loan is paid off, the gap insurance policy is no longer in effect. In other words, gap insurance is associated with a specific auto loan and cannot be transferred or reassigned to another loan, even if it covers the same vehicle.

If you have paid your gap insurance in full, you will likely receive a prorated refund. However, if you are paying your gap insurance in instalments, you probably won't get a refund. It's important to note that gap insurance refunds usually take around 4 to 6 weeks to process.

After refinancing, you may want to consider purchasing a new gap insurance policy that fits your new loan. To determine whether you need it, you should first check if your new lender requires gap insurance. If it's not required, you can ask your car insurance company about the payout amount in the event of your car being declared a total loss. Compare this amount to what you owe, and decide if it makes sense to get a new gap insurance policy.

Additionally, when refinancing, there are a few pros and cons to keep in mind. Refinancing can help lower your interest rate and monthly payments, give you a different loan term, and free up money to pay off other debts. On the other hand, you may need to pay a prepayment penalty and fees for the new loan, and there may be a temporary dip in your credit score if the lender conducts a hard pull inquiry.

How do I get a refund on gap insurance?

If you have paid for your gap insurance in full upfront, you may be entitled to a refund if you cancel your policy early. This could be because you have paid off your loan, are switching to a different insurance company, or have sold or traded in your car.

However, you will not be eligible for a refund if you have filed a claim against the policy, or if your vehicle has been declared a total loss and your gap policy has paid out the difference between the car's value and your loan balance.

To get a refund, you will need to contact your insurance agent or company and inform them that you want to cancel your policy. They will then let you know what paperwork and documentation are required. This may include an odometer disclosure statement verifying the car's current mileage, and a letter from your lender verifying that the car loan has been closed. Once you have submitted all the necessary paperwork, you should receive your refund, usually in the form of a physical check or a direct deposit.

If you have paid for your gap insurance in monthly instalments, you may only get a small refund or no refund at all if you cancel your policy early.

When should I get a refund on gap insurance?

You can get a refund on your GAP insurance under certain circumstances. GAP insurance refunds are most commonly issued after a loan is paid off early or the car is sold or traded in. You can also get a refund if you refinance your car loan, as this pays off your original car loan.

To get a refund, you must have paid for your GAP insurance upfront. If you paid monthly, you may still get a refund, but it will likely be much smaller. The amount of your refund will be prorated, depending on how long you've had the coverage and how much time is left on the policy. You can calculate your refund by dividing the total cost of your GAP insurance by the number of months of coverage, then multiplying the monthly premium by the number of months left on your policy.

You can get a refund at any point before the policy period expires. However, if your vehicle is stolen or becomes totalled, you will not be able to get a refund. You also cannot get a refund if your policy has expired or if you have filed a claim against the policy.

To get a GAP insurance refund, you need to contact your insurance provider and inform them that you want to cancel your GAP insurance and request a refund for the remaining coverage. You will need to provide your policy number and proof of refinance, sale, or trade. You may also need to provide an odometer disclosure statement and a payoff letter from your lender. The refund process typically takes between four and six weeks.

Frequently asked questions