GAP Insurance vs Extra Down Payment
**GAP insurance** covers the difference between loan balance and insurer payout after a total loss. A **larger down payment** reduces negative equity from day one and cuts interest—often the cheaper long-term fix if cash is available.
Step by step
1. Check LTV at purchase
Long terms + minimal down create immediate underwater risk.
2. Price GAP premium
Dealer GAP is often marked up—compare insurer quotes.
3. Model total loss odds
GAP matters most in early loan years with high depreciation.
GAP vs down payment
Extra down helps every month; GAP only pays on a total-loss event.
- GAP insurance: Low upfront; single-purpose; may be required on leases.
- Extra down: Lower payment and interest; less need for GAP.
Use our calculators
Common mistakes
- Buying GAP on low-LTV loans
- Rolling GAP into loan principal
FAQ
Does collision cover the loan?
Insurer pays ACV—you may still owe the lender the gap.