GAP Loan & Lease Fundamentals Flashcards

In vehicle leasing, the 'residual value' is best defined as:

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.

The 'money factor' in a vehicle lease is most analogous to which loan concept?

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.

Which event automatically triggers the calculation of the GAP benefit under most GAP contracts?

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.

If a vehicle is stolen and never recovered, how is it typically classified for GAP claim purposes?

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.

A GAP claim calculation typically starts with the primary insurer's ACV settlement and then:

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).

Which document is essential for processing a GAP claim to verify the outstanding loan or lease payoff amount?

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.