More than 80% of new cars in the UK are bought on finance, with Personal Contract Purchase (PCP) and Hire Purchase (HP) being the most popular options. If you’ve just signed a finance deal, you’ve probably been offered GAP insurance — but is it really worth it? Let’s break it down..

First things first: What is GAP insurance?

GAP (Guaranteed Asset Protection) insurance covers the difference between what your motor insurer pays out if your car is written off or stolen, and either:

• The original price you paid,
• The outstanding finance you still owe, or
• The cost of a brand-new replacement.

This can save you from being left with a hefty finance bill and no car to show for it.

PCP finance explained

With a Personal Contract Purchase (PCP):

• You pay a deposit, followed by monthly instalments.
• At the end, you can either hand the car back, pay the balloon payment to own it, or trade it in.

The risk? Cars on PCP deals depreciate quickly, and you might still owe more than your car is worth if it’s written off. Without GAP cover, you could be stuck paying finance on a car you no longer have.

HP finance explained

With Hire Purchase (HP):

• You make monthly payments until the finance is cleared.
• Once the last payment is made, the car is yours.

The risk? If your car is written off midway through your HP agreement, your insurer may pay its market value. If that’s less than what you owe the finance company, you’d still be liable for repayments. GAP insurance ensures that doesn’t happen.