Consumers and Guaranteed Asset Protection (“GAP Protection”) on Vehicle Loans and Sales-Financing Contracts: A First Look

28 Pages Posted: 1 Oct 2021

See all articles by Thomas A. Durkin

Thomas A. Durkin

Board of Governors of the Federal Reserve System

Gregory Elliehausen

Board of Governors of the Federal Reserve System

Thomas Miller

Mississippi State University - Department of Finance and Economics; Consumers' Research

Date Written: September 29, 2021

Abstract

Guaranteed Asset Protection (GAP) shields purchasers from financial risks of losses exceeding insured collateral values if vehicles become total losses. Yet surprisingly little is known about the sales of this voluntary product, or consumers’ attitudes toward it. In this study, we report the results of a representative national survey conducted by the Survey Research Center (SRC) of the University of Michigan. The SRC interviewed 1,206 individuals in the fall of 2020. This survey shows consumers purchased GAP about 39 percent of financed vehicle transactions. Consumers purchase GAP more often when there is a heightened financial risk: larger credit amounts, longer loan maturities, and lower income levels. More than 90 percent of GAP purchasers report that buying GAP is a good idea and that they would buy it again. Only about 1 percent of surveyed purchasers indicate dissatisfaction with their choice. A multivariate model of GAP purchase suggests that consumers’ financial situation and terms of the transaction are more important that risk aversion by itself.

Keywords: GAP, GAP Waiver, GAP insurance, vehicle financing, ancillary products, consumer credit, debt cancellation agreements

JEL Classification: G22, G23, G52

Suggested Citation

Durkin, Thomas A. and Elliehausen, Gregory and Miller, Thomas, Consumers and Guaranteed Asset Protection (“GAP Protection”) on Vehicle Loans and Sales-Financing Contracts: A First Look (September 29, 2021). Available at SSRN: https://ssrn.com/abstract=3933304 or http://dx.doi.org/10.2139/ssrn.3933304

Thomas A. Durkin

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gregory Elliehausen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2326 (Phone)

Thomas Miller (Contact Author)

Mississippi State University - Department of Finance and Economics ( email )

Mississippi State, MS 39762
United States

Consumers' Research ( email )

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