New Study Finds Consumers Value Guaranteed Asset Protection

WASHINGTON, March 8, 2022 /PRNewswire/ -- The Consumer Credit Industry Association* reports that a new academic paper by three financial experts, including two economists with the Board of Governors of the Federal Reserve System, concludes that consumers find tremendous value in Guaranteed Asset Protection (GAP) Waivers that are available to them when financing the purchase of a vehicle from auto dealers.

GAP Waiver, available from lending institutions and automobile dealerships, is an optional consumer financial protection product that waives all or part of the debt the consumer owes when their financed vehicle is a total loss or unrecovered theft and shields purchasers from financial risks of losses exceeding insured collateral values.

The study, Consumers and Guaranteed Asset Protection ("GAP Protection") on Vehicle Loans and Sales-Financing Contracts: A First Look, highlights that purchase of GAP Waivers on auto loans has "become fairly common since its introduction about three decades or so ago." More than 90% of GAP Waiver purchasers reported their view that GAP Waiver purchase is a good idea and would purchase the product again, while 40% of non-GAP Waiver purchasers agreed that the voluntary product is useful.

Vehicle prices have been continuously increasing as new vehicle technologies emerge and in light of customer preference for CUVs, SUVs and light-duty trucks. Through October 2021, the average transaction price of a new vehicle was $41,421, according to the National Automobile Dealers Association (NADA).

According to the paper's authors: "As vehicle values have increased over this period and credit requirements have eased with widespread prosperity and improved credit-granting ability through statistical credit scoring, it has seemed likely that the potential for "gaps" might have grown along with ready credit availability and the desire for GAP might have become more common." GAP Waiver purchase is more likely to be purchased when the amount financed is greater, loan terms are longer and existing loan balances are rolled into a new loan balance, and a purchasers' income is lower.

The paper underscores that customers falling into one of these categories may feel unsuited to take on financial risks and, consequently, may become candidates for the financial protection GAP Waivers offer. "Although there always will be risk associated with any credit transactions, it appears that many potential vehicle purchasers have chosen to purchase GAP [waiver] as a means of managing some of this risk and purchasers report their satisfaction with the product," the paper states.

Of the GAP Waiver purchasers examined for the paper, about nine tenths say they would purchase the optional product again and would recommend purchase to friends and family members.

Read the full academic paper here.

*CCIA fosters consumer financial security by assuring a healthy market for voluntary protection products that help consumers meet their payment obligations should an unforeseen event arise such as disability, job loss, death, total loss of a vehicle, or repair of a household asset.

Contact
Tom Keepers
Consumer Credit Industry Association
President & CEO
p. 608.848.4484
[email protected]

SOURCE CCIA