GAP Loan & Lease Fundamentals Flashcards
6 cards from real GAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 GAP Loan & Lease Fundamentals flashcards as text
Under a closed-end vehicle lease, who bears the risk if the vehicle's actual market value at lease-end is lower than the stated residual value?
Answer: The lessor (leasing company)
In a closed-end lease, the lessor bears the residual value risk; if the car is worth less than projected at lease-end, the lessee simply returns it without penalty.
What is the significance of the 'amortization schedule' for a GAP-covered loan?
Answer: It shows how the loan balance decreases over time, which determines when negative equity may disappear
The amortization schedule tracks principal and interest allocation per payment, showing when the outstanding balance will drop below the vehicle's ACV and GAP exposure will naturally end.
A lender requires 'Lender's Loss Payee' status on a borrower's auto insurance policy primarily to:
Answer: Ensure the lender receives insurance proceeds in a total loss event, protecting its collateral interest
Lender's loss payee status protects the lender's secured interest by ensuring any insurance settlement is paid to the lender (up to the loan balance) before the borrower receives remaining proceeds.
Which term describes the practice of a lender advancing more than 100% of a vehicle's value to cover taxes, title, registration, and accessories?
Answer: Advance over book or LTV over 100%
When lenders finance amounts above 100% LTV to cover F&I products, taxes, and fees, the borrower is immediately in negative equity, creating immediate GAP exposure.
From a GAP underwriting perspective, a vehicle with high depreciation in the first year (e.g., luxury sedans) represents:
Answer: Higher GAP risk because the ACV drops quickly relative to the loan balance
Vehicles that depreciate rapidly create a larger and longer-lasting gap between the loan balance and ACV, increasing the probability and size of a GAP claim.
The concept of 'loan seasoning' in GAP underwriting refers to:
Answer: The period elapsed since loan origination, after which the balance has declined enough to reduce GAP exposure
As a loan seasons (ages), principal payments reduce the outstanding balance while the vehicle continues to depreciate, eventually eliminating negative equity and material GAP exposure.