What term describes the difference between the actual cash value of a car and the outstanding loan balance at the time of loss?

The term that describes the difference between the actual cash value of a car and the outstanding loan balance at the time of loss is "gap." This scenario typically arises when a vehicle's value decreases faster than the rate at which the loan is being paid down. The gap represents the amount that is not covered by insurance, which can leave a borrower in a financially vulnerable position if they owe more on the car than its current market value.

Understanding this term is particularly important for car owners who have auto loans and are considering their insurance options, as it emphasizes the potential financial risk involved in the event of a total loss. In such circumstances, gap insurance can be a valuable addition to an insurance policy, covering the difference between what an insurance payout would offer and what the owner still owes on their vehicle.