Buyer guide
Service Contracts and GAP, in Plain Words
A service contract pays for covered repairs after a warranty ends. GAP pays the difference between what your car is worth and what you still owe if it's totaled. Both are separate plans, both are optional, and neither is ever required to buy or finance a car.
Erik TrejoUpdated October 22, 20263 min readWarranty or service contract?
Warranties, service contracts and GAP are the easiest parts of buying a car to skim past. Here is each one in plain words.
- A warrantyThe seller's promise. It comes with the car.
- A service contractA separate plan, with its own terms, that pays for covered repairs.
- GAPA separate plan for buyers who finance. It covers what you'd still owe after a total loss.
Service contracts
A service contract pays for covered repairs after the factory warranty or your included coverage ends. It is never required to buy or finance a car.
- What's coveredA list of parts, or everything except a list?
- The deductibleWhat you pay each time it's used.
- The termHow many months and miles.
- Where repairs can be doneAny licensed shop, or only certain ones.
- When it startsOn the day you buy, or after a waiting period.
- How to cancelAnd how the refund works.
GAP, for buyers who finance
A car loses value as it gets older and as you drive it. Every payment pays down what you owe. If the car loses value faster than you pay it down, a space opens up between what it's worth and what you owe. That space is the gap.
- If the car is totaledYour auto policy pays what the car is worth today.
- If you still owe more than thatGAP pays the difference, so you aren't paying off a car you no longer have.
- You still need full coverageGAP works with your auto policy, it doesn't replace it.
- If you pay the loan off early, sell or refinanceYou may be owed a refund on the unused part.
When GAP makes sense
It usually makes sense if:
You can usually skip it if you pay cash, put about 20% or more down, take a loan of 36 months or less, or your auto policy already has loan payoff coverage.
- You put little or nothing down.
- Your loan is 60 months or longer.
- You drive more than most.
- Tax and fees are rolled into the loan.
Questions to ask about any add-on
It helps to see each one on its own line, with its own price.
- Is this optional? Service contracts and GAP always are.
- What does it cost on its own?
- Can I cancel it, and how? Get the cancellation terms in writing.
- Is it already in the price? Check the contract line by line before you sign.
How we do it at Authentico
Every car comes with the Settle-In Promise, a written powertrain warranty for 15 days or 650 miles, and Year One, a 12-month service contract you can use at any licensed shop in the US. Longer coverage and GAP are optional, and never required; your approval never depends on either one. If you want a longer plan, Year One's value is credited toward it.
Questions people ask
Do I have to buy a service contract or GAP to get a car loan?
No. Both are optional. If a lender says one is required, that has to be written in your contract. Your approval should never depend on it.
Is a service contract the same as a warranty?
No. A warranty is the seller's or maker's promise and comes with the car. A service contract is a separate plan with its own terms, deductible and cancellation rules.
Does GAP replace my auto policy?
No. Your auto policy pays what the car is worth. GAP only covers what you'd still owe beyond that. You still need full coverage.
Can I cancel GAP or a service contract?
Usually, yes. Ask for the cancellation terms in writing. If you pay off the loan early, sell or refinance, you may be owed a refund on GAP.
Where else can I get GAP?
Your own auto insurer may offer it, so it's worth comparing price and coverage before you buy.
Official sources
- Auto warranties and auto service contracts (FTC)consumer.ftc.gov
- What is GAP? (Consumer Financial Protection Bureau)consumerfinance.gov
- Am I required to buy a service contract or GAP to get an auto loan? (CFPB)consumerfinance.gov
- Buying a used car from a dealer (FTC)consumer.ftc.gov
Keep reading
The rest of the buyer guides.
How to Inspect a Used Car Before You Buy: The 25-Point Checklist
Read it →Start hereUsed Car Maintenance in Las Vegas: Your First 12 Months, Service by Service
Read it →SigningWhere Every Dollar Goes When You Buy a Used Car in Nevada
Read it →SigningThe Papers You Sign When You Buy a Used Car in Nevada
Read it →The papersNevada Used Car Inspection Laws: What the Law Requires Before You Buy
Read it →What Reconditioning Should a Used Car Get Before It Is Sold?
See the checklist done on a real car.
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