GAP GAP Loan & Lease Fundamentals 2 — Questions and Answers
Question 1: In vehicle leasing, the 'residual value' is best defined as:
- The projected value of the vehicle at the end of the lease term (Correct answer)
- The total of all monthly lease payments
- The vehicle's current Kelley Blue Book trade-in value
- The lessor's cost to originate the lease
Correct answer: The projected value of the vehicle at the end of the lease term
Residual value is the estimated market value of the vehicle at lease-end, set by the lessor at origination; it determines the monthly payment and the buyout price.
Question 2: The 'money factor' in a vehicle lease is most analogous to which loan concept?
- Annual percentage rate (APR) (Correct answer)
- Loan origination fee
- Loan-to-value ratio
- Principal balance
Correct answer: Annual percentage rate (APR)
The money factor is the lease equivalent of an interest rate; multiplying the money factor by 2,400 converts it to an approximate APR for comparison purposes.
Question 3: Which event automatically triggers the calculation of the GAP benefit under most GAP contracts?
- A total loss declaration by the primary auto insurer (Correct answer)
- The vehicle being stolen but later recovered
- A partial loss repair exceeding 50% of ACV
- The borrower filing for bankruptcy
Correct answer: A total loss declaration by the primary auto insurer
A total loss declaration by the primary insurer is the triggering event for GAP; partial losses, recoveries, and financial events like bankruptcy do not activate the GAP benefit.
Question 4: If a vehicle is stolen and never recovered, how is it typically classified for GAP claim purposes?
- Total loss, making the borrower eligible for the GAP benefit (Correct answer)
- Partial loss, requiring the borrower to wait 30 days
- Not covered under GAP because no collision occurred
- A deductible-only event handled by the primary insurer
Correct answer: Total loss, making the borrower eligible for the GAP benefit
An unrecovered stolen vehicle is declared a total loss by the primary insurer, which triggers the GAP benefit just as a physical total-loss event would.
Question 5: A GAP claim calculation typically starts with the primary insurer's ACV settlement and then:
- Adds any deductible reimbursement and subtracts exclusions to arrive at the net GAP benefit (Correct answer)
- Doubles the ACV to account for depreciation recapture
- Applies a flat 20% benefit regardless of the actual gap
- Reimburses only the down payment the borrower made
Correct answer: Adds any deductible reimbursement and subtracts exclusions to arrive at the net GAP benefit
The net GAP benefit equals the loan payoff minus the ACV settlement, adjusted by adding any covered deductible and subtracting any excluded amounts (e.g., past-due payments, prior damage).
Question 6: Which document is essential for processing a GAP claim to verify the outstanding loan or lease payoff amount?
- A lender-issued payoff statement dated at or near the loss date (Correct answer)
- The original dealer purchase order
- The vehicle's title showing lien holder information
- The primary insurer's declarations page only
Correct answer: A lender-issued payoff statement dated at or near the loss date
A current payoff statement from the lender or lessor is required to verify the exact outstanding balance at the time of loss, which is the basis for calculating the GAP benefit.
GAP GAP Loan & Lease Fundamentals 2
In vehicle leasing, the 'residual value' is best defined as: