Buying a car is an exciting milestone that comes with plenty of things to learn: financing, interest rates, insurance, maintenance and more. One term you may hear along the way is GAP. What exactly is it?

GAP stands for Guaranteed Asset Protection. It’s designed to help cover the difference between what you owe on your auto loan and what your vehicle is worth if your vehicle is stolen or your insurance company determines the vehicle is a total loss.

Here’s a simple example: Say you owe $25,000 on your auto loan, but your vehicle is valued at $21,000 at the time of the loss. Your regular auto insurance may cover the vehicle’s $21,000 value, but you’ll still owe $4,000 on a loan for a vehicle you no longer have. GAP coverage pays that difference. Some GAP coverage even pays more so you have something left to put down on a replacement vehicle.

How does this gap happen? Vehicles typically lose value the minute you drive them off the car lot. The balance on your loan takes longer to pay down. GAP coverage can provide an extra layer of financial protection during the life of your auto loan. Think of it as helping your loan and your vehicle stay on the same page.

If you’re financing a vehicle through Allied FCU, ask about GAP coverage and whether it makes sense for your situation. Understanding your options before you drive off the lot can help you feel more confident about your auto loan.