Dear Liz: In 2012, I financed a 2008 Honda at my credit union. The car was priced at $16,500. With a trade-in, the loan came to $22,000. GAP coverage was factored into the loan payments, which were $464 a month. Last year, the car was wrecked and deemed a total loss by the insurance company. They paid the “book value” of $8,860 to the credit union. However, $6,000 remained on the loan. The GAP coverage paid $3,000 and now the credit union is saying I owe the remaining $3,000. They said the GAP would only pay a percentage of the balance because the car was “over financed” back in 2012. This seems to be unfair, and I feel like the lender should get the money from the GAP provider (per the contract that was signed when the car was financed). Is it possible for the GAP provider to refuse to cover the whole balance left on the loan? I will be meeting with the loan officer next week to discuss payment options.

Answer: You’ve discovered one of the many reasons why you don’t want to roll debt from a previous vehicle into a car loan to purchase its replacement.

Many people do exactly that, though. When trading in a car for a new vehicle, nearly 1 in 3 people roll debt from the old loan into the new one, figures from car comparison site Edmunds.com show. The average amount of negative equity in January was $4,814.50. With used cars, 1 in 4 people with a trade-in roll debt from their old car into the replacement loan, with an average negative equity of $3,595.30.

GAP (Guaranteed Auto Protection) coverage would seem to be the solution, since it’s designed to pay the lender the difference between the loan on the car and what the car is worth. Most GAP policies, though, won’t cover the debt you brought over from the previous vehicle. That leaves you in exactly the position you thought you would avoid, which is having no car but a pile of debt to pay off.

A better approach to car buying is to make a significant down payment, such as 20% of the purchase price, and keep loan terms to no more than four years. You can’t buy as much car that way, but you won’t end up owing far more than the car is worth.