You found the car. You negotiated the price. You’re ready for an auto loan. And then the sales rep or finance manager handed you a menu of add-ons you may have never heard of.
GAP. DPW. MBP. Extended warranties. Tire and wheel protection. And so on.
Suddenly, a moment that should feel exciting feels like a pop quiz you didn’t study for.
By the time you’re done reading this blog, you’ll have answers to questions like:
- What is GAP insurance on a car loan, and how does it work?
- What is a Depreciation Protection Waiver (DPW)?
- What is Mechanical Breakdown Protection (MBP), and is it worth it?
- What’s the difference between a manufacturer’s warranty and an extended warranty?
- Are extended car warranties worth it?
- Do I need dealership add-ons?
Rick Seamann, vice president of indirect lending at Centris Federal Credit Union, is here to prepare you to walk through those doors and determine what warranties and protection may be right for you.
If Your Car Is Totaled or Stolen: GAP and DPW
These two products both protect you if your car is totaled or stolen, but they work differently depending on how much you put down.
What is GAP insurance on a car loan? What does GAP insurance cover?
GAP stands for Guaranteed Asset Protection. It covers the difference between what you owe on your loan and what your insurance company actually pays out if your car is totaled or stolen.
Here’s the problem GAP insurance solves: cars lose value quickly, but loan balances pay down slowly.
For example, if you owe $30,000 on your vehicle and your insurance pays $25,000, you’re on the hook for the remaining $5,000 even though you no longer have the car. GAP insurance covers that $5,000 gap.
At Centris, GAP also includes up to $1,000 toward your insurance deductible if a gap remains after your insurance payout. And through the GAP Advantage benefit, you receive $1,000 toward financing your next vehicle with Centris within 90 days of your claim. There are no make, model, or mileage restrictions, and you can cancel within 60 days for a full refund.
Note: GAP insurance is especially valuable if you’re financing with little or no money down.
What is a Depreciation Protection Waiver (DPW)?
If your car is totaled, a DPW covers the gap between what you originally paid for the vehicle and what you still owe, up to $10,000.
Think of DPW as the complement to GAP. While GAP protects your loan balance, a DPW protects the investment you’ve made in the vehicle.
For example, if you purchased your vehicle for $32,000 and your remaining auto loan balance at total loss is $24,000, a DPW would pay that $8,000 difference.
Note: DPW might be a better fit for members who made a meaningful down payment and want to protect that equity.
Do I need both GAP and DPW?
Nope! They’re designed for different situations, but having one of them is invaluable.
As Seamann put it, “Your good credit is worth protecting; these add-ons can help you do that.”
GAP insurance is built for low- or no-down-payment scenarios.
DPW is for members who put money down and have equity to protect.
A simple way to remember it: GAP protects your loan. DPW protects your investment. A Centris member services representative can walk you through which one fits your specific loan and needs in just a few minutes.
If Something Breaks Down: Mechanical Breakdown Protection (MBP)
This one isn’t about total loss. It’s about what happens when something breaks down and the repair bill is more than you expected.
What is Mechanical Breakdown Protection (MBP)?
Mechanical Breakdown Protection, or MBP, covers major repairs after your manufacturer’s warranty expires. We’re talking about the big-ticket items: engine, transmission, electrical systems, cooling, fuel systems, and more.
Think of it as an extended warranty backed by your trusted credit union rather than the dealership.
“Is it easier to come up with $2,000 to $3,000 in minutes for a failed engine or transmission, or is it easier to add $20 to $30 to your monthly payment?” Seamann explains the value of MBP with this scenario.
MBP is especially worth considering if you’re financing a used vehicle that may be outside, or close to, its original warranty period.
What does MBP not cover?
MBP is not a get-out-of-maintenance-free card. It does not cover damage from neglect, normal wear and tear, tires, brake pads, windshields, or cosmetic damage.
You’re still responsible for oil changes, transmission maintenance, and other routine upkeep. If a mechanical failure results from neglect, MBP won’t cover it. Think of MBP as a safety net for the unexpected — not a replacement for taking care of your vehicle.
Manufacturer’s Warranty vs. Extended Warranty
The dealership may also offer extended warranties. Here’s how those compare to what already comes with your car.
What’s the difference between a manufacturer’s warranty and an extended warranty?
A manufacturer’s warranty comes standard with every new vehicle at no extra cost. It typically covers bumper-to-bumper for 3 years or 36,000 miles. An extended warranty is purchased separately and can stretch coverage to 10 years or 100,000 miles, depending on the product.
“A third-party warranty is an add-on cost and can include several types of coverage, from limited basic coverage to powertrain-only coverage,” Seamann clarifies the difference in coverage. “Third-party warranties can be added to a manufacturer’s warranty, extending coverage from 3 years/36,000 miles to 10 years/100,000 miles, and anywhere in between.”
Are extended warranties worth it?
For most buyers, yes, especially with older or higher-mileage vehicles.
“An extended warranty can be valuable for all vehicles, but typically, a higher-mileage, older vehicle can have more mechanical issues than a newer, low-mileage vehicle,” says Seamann. “At the end of the day, they are all machines and can break down, so getting an extended warranty on any vehicle purchase if your budget allows for it may be a good decision.”
Here are a few things to keep in mind: extended warranties do not cover neglect or wear-and-tear items like brake pads, tires, paint, or windshields. And timing matters.
Seamann advises buying at signing whenever possible.
“Adding the extended service agreement at the time of sale can be included in your auto loan amount, and as previously mentioned, the cost may be lower for the consumer,” he says.
Purchasing after the sale, you’ll typically have to pay cash, usually $3,000 to $5,000 out of pocket, and it cannot be added to your existing loan without a refinance. The price may be negotiable at the dealership, so don’t be afraid to ask.
Other Dealership Add-Ons: A Quick Rundown
Beyond protection products, the finance office may offer a few more add-ons. Here’s what they are.
Tire and wheel protection cover road-hazard damage, which is a good option for high-mileage drivers or anyone frequently on rough roads.
Key replacement is often worth the low add-on cost. Key fobs can run $300 to $400 to replace on their own.
Paint and fabric protection vary widely in quality. Before you agree, ask specifically what product is being applied.
Auto Deductible Reimbursement (ADR) is one you don’t have to pay extra for. It comes free with every Centris GAP purchase. ADR covers up to $500 per insurance claim on any vehicle you own and insure, with unlimited claims.
“Dealerships offer many different add-ons, and all can provide real value if you end up needing to use them. Hindsight is 20/20,” says Seamann. “I always tell our members: one payment, one worry.”
Get Ahead of the Paperwork
GAP insurance, DPW, and MBP are all available through Centris and can be rolled into your auto loan. The best time to think through your options isn’t while you’re sitting across from the finance manager. It’s before you even step onto the car lot.
Applying for pre-approval through Centris means you may be able to walk in already knowing your rate, payment, and protection options.
Not sure which product fits your situation? Talk to a Centris member services representative before your next purchase, and we’ll walk you through everything.
You can also use our auto loan calculator to plan your budget before you shop.
