Stolen Car? Insurance Paid 'Market Value', But You Still Owe the Bank £5,000. Why You Need 'GAP Insurance'

Stolen Car?

Imagine this nightmare scenario: You bought a brand new Range Rover or BMW six months ago on finance (PCP). You still owe the finance company £40,000.

Yesterday, the car was stolen (or written off in a crash). Your car insurance company accepts the claim but says: "The current market value of your car is now only £35,000 due to depreciation."

They pay you £35,000. The bank demands their £40,000.

The Result: You have no car, and you suddenly owe the bank £5,000 in cash immediately. This is called "Negative Equity," and it destroys finances. This is why you need Guaranteed Asset Protection (GAP) Insurance.

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What Does GAP Insurance Do?

Standard car insurance only covers the car's value at the moment of the incident. GAP insurance covers the shortfall.

It pays the difference between your insurer's payout and:

• The amount you owe on finance (Finance GAP).
• The original invoice price you paid (Return to Invoice - RTI).
• The cost of a brand new equivalent car (Vehicle Replacement - VRI).

In the scenario above, an RTI policy would pay that extra £5,000, clearing your debt and leaving you free to start again.

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⚠️ The "Dealer Trap" & The 4-Day Rule

Historically, dealers pushed GAP insurance aggressively in the showroom. But following the FCA crackdown, the rules have changed to protect you.

🛑 Don't Buy in the Showroom!

1. The Price Gap: Dealers often charge £399 - £599. Independent online providers (like ALA or Direct Gap) sell better cover for £150 - £200.

2. The 4-Day Pause Rule: Dealers are legally NOT allowed to sell you GAP insurance on the same day they sell you the car. They must give you a "pause period" (usually 4 days) to shop around. Use this time to buy it online for half the price.

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Wait! Do You Already Have It? ("New for Old")

Before you spend a penny, check your main comprehensive car insurance policy.

Many insurers include a "New for Old" clause for the first 12 months if you are the first registered keeper. If your car is stolen in year 1, they replace it with a new one automatically.

Pro Tip: If you have this, you can buy a GAP policy with a "deferred start date" to kick in only when your car turns 1 year old, saving you money.

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A Safety Net for Finance Buyers

New cars lose value the moment they leave the forecourt. If your car gets written off, standard insurance leaves you out of pocket.

If you bought with cash or a cheap used car, you might not need it. But if you are on a PCP deal or bought a brand new car, GAP insurance is essential. Just make sure you buy it independently online to save 50%. It’s a small price to pay to avoid a £5,000 debt for a car you can't even drive.

Disclaimer: This article is for informational purposes only. GAP Insurance is a regulated financial product. Rules regarding the 'Pause Period' are set by the Financial Conduct Authority (FCA). Always read the Policy Information Document (IPID) before purchasing.