If you’re in the market for a new car, it pays to mind the gap — so-called gap insurance, that is.
True to its name, gap insurance is meant to bridge the difference between the balance on an auto loan or lease and the market value of the vehicle, which is what your auto insurance will cover if it’s totaled or stolen. Without coverage, that gap could leave you on the hook for thousands of dollars.
Gap insurance has become more prevalent as car prices rise and financing terms lengthen, said Matt DeLorenzo, managing editor for Kelley Blue Book. The infrequent nature of car purchases means drivers may not have encountered it the last time they bought or leased a car.
“I think it’s under the radar for a lot of folks,” he said.
(Where you may have heard the term recently: The New York Times reported last week that Wells Fargo & Co. is facing regulatory scrutiny over practices related to gap insurance —specifically, that some consumers who paid off their loans early may be entitled to a partial refund of the premium. Well Fargo had flagged the issue in its Form 10-Q filed in early August. A Wells Fargo spokeswoman told CNBC the bank’s investigation is still in the preliminary stages, but it is actively reviewing its policies and working with dealers to improve the refund process.)