Complete Guide

GAP Refund After Early Payoff: How it Works

Paid off your loan early? You are owed a pro-rata refund of your unused GAP insurance. Here is how to claim it.

6 min readUpdated January 2026

Verified againstState Insurance Laws, Finance Code|Last updated:January 24, 2026

Key Takeaways

The "Unearned Premium" Rule
The Process

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refunds you are owed from early payoff

The "Unearned Premium" Rule

GAP insurance is usually paid upfront for the full term of your loan (e.g., 5 years). If you pay off the loan in 2 years, you have paid for 3 years of coverage you no longer need.

This unused portion is called "Unearned Premium." Under almost every state's insurance code, the insurer cannot keep premium for coverage they are no longer providing. They *must* refund it to you.

The Process

Get Proof of Payoff: Your "Lien Release" or a letter from the bank showing a $0 balance.
Contact the Dealer/Admin: You don't ask the bank; you ask the *seller* of the GAP policy (usually the dealership).
Submit Request: Send a written cancellation request with the payoff date.

Frequently Asked Questions

Does the refund happen automatically?

Rarely. While some states mandate automatic refunds, most dealers wait for you to ask. If you don't ask, they keep the money.

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