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Why GAP insurance for used cars is increasing

As used car prices and borrowing hit new heights, so does the financial risk for car buyers

GAP insurance advice at The Car Expert, brought to you by

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There seems to be a belief among some car buyers that GAP insurance is only valuable for those customers buying a brand-new vehicle with some sort of finance. But it can be equally valable for used car buyers as well.

Last month, we talked about the importance of protecting your finance debt if you are buying a car with a PCP. But this applies equally to new and used cars.

If you’re buying a cheap used car for a couple of thousand pounds or less, it may not be that beneficial. But if you’re spending more than that, and especially if you are borrowing money to help you pay for the car, GAP (guaranteed asset protection) insurance is well worth considering.

Used car finance is skyrocketing

Over the last decade, the number of people buying used cars on dealer-sourced finance has tripled. According to data published by the Finance and Leasing Association (FLA), more than 2.1 million used cars have been financed through dealerships in the 12 months to July 2021. That compares to less than 700,000 used cars ten years ago in 2011.

As well as massive growth in the number of people financing a used car, the amount being borrowed has increased rapidly as well. Back in 2011, the average amount borrowed on a used car was just over £9,000. In 2021, that has increased to just under £17,000 – an 80% increase in value. And it’s accelerating as more consumers switch from new to used cars.

More borrowing means more debt risk

While the used car market used to be primarily a cash business, it’s now shifted to be dominated by car finance. That has increased the financial risk for car buyers.

Traditionally, used vehicles don’t depreciate at the same rate as new vehicles. But if you’re using a finance deal to purchase a used vehicle, you’re usually borrowing a lot of money and paying a significant amount of interest on top of your borrowing. That means GAP insurance for used cars is becoming an increasingly important consideration.

GAP insurance is the cover that bridges the gap between what your main insurer will pay out and what you paid for your vehicle, in the event your car is a total loss (ie – stolen or written off). 

While your primary car insurance will pay out the market value for your car at the time it was stolen or written off, that’s a lot less than what you paid for the car originally. The cheque offered is also unlikely to cover your finance settlement completely, leaving you with no car and, potentially, a debt of thousands of pounds.

GAP insurance for used cars – your options

GAP insurance can be useful for any owner with a vehicle less than ten years old, whether the car bought is new or used. And even if you’re a cash buyer, if you’re particular about your vehicle being replaced like-for-like, you’ll still have to factor some depreciation in.

Return To Invoice GAP is traditionally the most common form of GAP insurance for used cars. If your car is a total loss, it covers the difference between your car insurance payout and the original purchase price.

Finance GAP covers the difference between your car insurance payout and your finance settlement, ensuring that any PCP hanging over you is completely paid off.

Vehicle Replacement GAP covers the difference between your car insurance payout and the replacement cost for a similar vehicle. This is helpful as used cars get increasingly more expensive, as a like-for-like replacement may cost a lot more in three years time than it does today, so you’re covered for any price increases.

Ultimately, insurance is there to get you out of a pickle when things go bad. While GAP insurance doesn’t suit all used vehicle purchases, given how intrinsic a car purchase is to a life of convenience, it’s worth considering all options.

More GAP insurance information

The UK’s best GAP insurance providers

The UK’s best GAP insurance providers

Can you buy GAP insurance in 2024?

Can you buy GAP insurance in 2024?

Are you paying too much for GAP insurance?

Are you paying too much for GAP insurance?

What is GAP insurance and should you have it?

What is GAP insurance and should you have it?

Why you should consider car lease GAP insurance

Why you should consider car lease GAP insurance

Additional reporting by Stuart Masson

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Cat Dow
Cat Dow
Cat is a former contributor to The Car Expert and The Van Expert. She now writes for Top Gear.
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