What happens to ipad when I give it to Apple for a new one?

It seems like I'm going to have to give my defective iPad to Apple and buy a new one for a reduced price. What exactly happens to it once Apple gets it?
I have a lot of sensitive info on there and if it is able to be refurbed, I'm afraid that someone will somehow gain access to it. I also know that theoretically, Apple isn't supposed to access any of that either but I don't know that I really believe it. If I had the money, I'd just hold onto mine and buy a new one. Since I don't, I don't know if I should just live without an iPad for a while or just stop being so paranoid. Any input on what really happens to these devices once Apple gets them?

"Out of warranty replacement" means just that; Apple replaces your iPad but, since it's not covered by the factory warranty either because the warranty has expired or the iPad has been damaged, will charge for the replacement.
Any replacement, in warranty or out of warranty, will probably be a refurbished unit, but you would not be able to tell the difference between a refurbished unit and new.
As to being able to purchase AppleCare, it depends on the country you're in and whether your original iPad is still within warranty. If you're in a country where Apple offers AppleCare+, then you can only buy AppleCare within 30 days of the date of original purchase and your iPad must be undamaged. If you're in a country where Apple still offers the older AppleCare plans, then you can purchase any time within one year of the date of original purchase. Either will probably apply, though, only if your iPad has failed due to a defect, not due to user damage.
Regards.

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