A Detailed Look At Credit Disability Insurance And Car Loans
March 9, 2014 Jordan L Bourland Leave a comment
It’s not uncommon for dealership finance managers to allow consumers to add credit disability payments into an existing auto loan. When speaking to consumers who have bad credit, dealership finance managers might say something about protecting the car loan.
Before making a final decision, consumers need to have an understanding of credit disability insurance and how it works. Valley Auto Loans has helped enough customers to know how important this information is for consumers.
A Look at Credit Disability Insurance
A lot of consumers have heard about this type of insurance, but they don’t know what it is or how it works. In most cases, a finance manager refers to this type of insurance as credit disability.
To make it easy to understand, credit disability is a type of health insurance, and it can be attached to an auto loan. Consumers might’ve also heard of credit life insurance, but unfortunately, this type of insurance is only beneficial to the lender.
Credit disability insurance can benefit both the buyer and the lender. Credit disability is useful because it will ensure the lender gets paid if the borrower cannot make their payment.
Credit disability functions in a way that is simple and easy to understand. When a borrower becomes disabled or sick, the insurance policy is used to make sure the lender is paid the money they’re owed.
A Deeper Look
The benefits for credit disability are activated when the borrower becomes very ill or injured. However, there is a waiting period for the benefits, so they don’t start immediately. In most cases, it can take 14 up to 90 days from the date that the borrower suffered the disability.
The exact details really depend on the policy fine print. After the waiting period has passed, the company that issued the credit disability policy will start sending the benefits.
Put simply, the insurance company will start paying the monthly loan payments for the disabled borrower. Normally, the borrower doesn’t have to suffer a permanent disability for the benefits to be paid.
Credit disability insurance is actually a product, and it’s normally sold by a finance manager, which is the person who works in the dealership’s finance department. When this type of insurance is mentioned, it’s usually mentioned very briefly, so most people have no idea what the insurance really does or why they might need it.
What to Consider When Buying a Credit Disability Policy
While arranging an auto loan contract, borrowers have the option of purchasing a credit disability policy, and they’re able to wrap the cost of the policy into the loan agreement. However, the policy must be added before any of the loan documents have been signed.
Consumers need to understand that there is a monthly fee for credit disability, and it’s determined by the initial balance of the loan. If a borrower decides that he or she wants credit disability, the cost of the insurance policy can be added into the total amount that is financed. The additional cost of the credit disability insurance will increase the monthly car payments, so consumers should be aware of this increase.
Do I Really Need Credit Disability Insurance?
If you’re financing a vehicle, then it’s likely that you’ll be offered credit disability insurance. It’s important to understand that you don’t have to purchase this insurance just because the finance manager offered it to you.
There might be several reasons why you should avoid purchasing this insurance. For starters, you might already have a life insurance policy, which will cover your car payments if you pass away. If you already have an existing policy, it’s likely that the policy will provide plenty of money to pay off the car loan.
When deciding if you want credit disability insurance, you need to consider how healthy you are. You also need to take time and make sure to read all of the fine print and details. It’s not uncommon for credit disability policies to be too overpriced, and if you can avoid it, you don’t want to end up paying too much money.
You should also know that the finance manager will not ask you questions about your current level of health because you have the obligation to look into any existing health conditions that you might have.
Benefits of Credit Disability Insurance
The borrower is the only individual who can decide if he or she wants credit disability. Before making a decision in favor or against the insurance policy, there are several considerations to make. One of the benefits of getting the insurance is peace of mind.
The borrower will know that the payments will always get paid. If the borrower suffers a temporary or permanent disability, the insurance will ensure the cat payments are paid. Although the insurance policy will increase all of the monthly payments, the borrower is really only paying a single payment for credit disability.
Another benefit is that credit disability insurance isn’t tied to the borrower’s credit score. If a borrower has a low credit score, some other insurance policies end up costing a lot of money. Since the borrower’s FICO scores don’t affect credit disability, it remains an affordable option for most borrowers.
Like most types of insurance, credit disability insurance also comes with some disadvantages. One of the downsides is the cost. The total cost of credit disability can be higher than a regular disability insurance policy, so consumers need to be aware of this fact and check all of their options.
Since credit disability insurance is wrapped up with the car loan, the borrower is actually paying interest on the cost of the insurance. A separate disability insurance policy doesn’t come with interest charges. It’s not uncommon for credit disability to come with several terms and conditions.
For example, there might be terms that say the policy will not pay benefits to a borrower with preexisting conditions. Although it’s not really a downside, there are alternatives to credit disability. Some borrowers are eligible or already covered for disability through their current employer.
Many consumers have poor credit, and they want to roll a credit disability insurance policy up with their car loan, but before making the decision, it’s important to examine the cost of the policy.
It’s also important for a borrower to check their insurability. As mentioned earlier, many people are already covered for credit disability through their employer.
Valley Auto Loans will work with you and match you to the best subprime dealer for your needs. Our vast network of lenders makes it easy for us to match our customers with the best opportunities regardless if you’re looking for a no credit check car loan or to refinance a loan you already have. To get started, you can begin filling out the credit application on our website.
A Detailed Look At Credit Disability Insurance And Car Loans by Jordan L Bourland
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