Gap Amount
 |
Definition of 'Gap Amount'Insurance will only cover a certain amount of coverage if leased items are stolen or totaled. There is often a difference between the amount the insurance company covers and the amount of the vehicle that is owed under the lease agreement, because of the way lease agreements are structured.Gap amount is the portion of a leased item's value that is not covered by insurance, in the event of a total loss from an accident or theft. Its calculation is based on the terms of the lease's early termination payoff provision. To protect against losing money because of the gap amount, consumers can purchase gap insurance. |
 |
Investopedia explains 'Gap Amount'The lease payments at the beginning of the lease term do not fully cover the vehicle's depreciation, because vehicles depreciate in value more quickly when they are newer and because a consumer's vehicle lease payments are flat amounts paid monthly over a period of several years.For example, a consumer might lease a $25,000 car for three years. It might depreciate by $5,000 in the first year, but the lessee might only pay a total of $3,600 in lease payments during that time. If the car is totaled at the end of the first year, the consumer will need to make up for the difference between what they paid and the value the car has lost. The gap amount would be $1,400, in this case. |
Related Definitions
Articles Of Interest
-
Top 10 Ways To Get Top Dollar For Your Car
Find out what steps you can take to reduce the depreciation of your vehicle. -
12 Car Insurance Cost-Cutters
If car costs are dragging you down, find out how to free yourself from some of the extra weight. -
Wheels Of A Future Fortune
Buy a quality car without driving your expenses through the roof. -
New Wheels: Lease Or Buy?
These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you. -
Beginner's Guide To Auto Insurance
Find the perfect policy that suits both your coverage and budgetary needs. -
Top Tips For Cheaper, Better Car Insurance
Accident, theft, vandalism - make sure your coverage will protect you when you need it most. -
The True Cost Of Owning A Car
Driving is often the most convenient way to get around, but it'll cost you. -
5 Things You Should Know About The New Health Insurance Marketplace
Here are five things you should know about the new Health Insurance Marketplace (AKA Health Insurance Exchange), which launches on October 1. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
Explaining Amortization In The Balance Sheet
Amortization is important to account for intangible assets. Read to find out more about amortization.
Free Annual Reports