Gap indemnity agreement is a legal document that protects the borrower from any loss he might suffer in case his vehicle gets stolen or damaged beyond repair. Gap insurance usually comes in handy when a borrower still owes a significant amount of money on his vehicle loan, and the car is totaled in an accident. In such cases, insurance companies only compensate for the market value of the car, which may not be enough to pay off the remaining loan balance.
The gap indemnity agreement aims to bridge the gap between the market value of the car and the outstanding loan balance. The agreement is signed between the lender and the borrower, and the latter is required to pay a monthly fee to cover the gap between the market value of the car and the loan balance.
The gap indemnity agreement is an essential document that protects the borrower`s financial interests in case of any unforeseen circumstances. It is worth noting, however, that gap insurance is not mandatory, and borrowers can choose to purchase it or not. But if the borrower decides against buying it, he must ensure to evaluate the risk and weigh the financial consequences of not having it.
In conclusion, the gap indemnity agreement is a necessary legal document that provides protection to borrowers from financial loss in the event of an unfortunate occurrence. As a borrower, it is essential to understand the workings of the agreement and weigh the benefits and drawbacks before making a decision. If you are considering taking out a car loan, ensure to discuss the gap indemnity agreement with your lender and determine if it is the right fit for you.