Options for Buying a Car with Bad Creditby Steve Cypher on Friday, March 1st, 2013
Finance managers at car dealerships refer to it as “protecting a loan” and the fact is that even if you have poor credit it’s always a good idea to have an understanding of the basics of how credit life insurance works with auto loans.
At Auto Credit Express we know this is true because we’ve spent the past twenty years helping car buyers with problem credit scores find those new car dealers that can offer them their best opportunities for approved car loans.
When an application is approved there’s also a good chance these consumers will be faced with a number of options for buying a car with bad credit including whether or not they want or need credit life insurance.
So what exactly is credit life?
Credit life insurance
Finance managers sometimes refer to it simply as “credit life” and essentially this product is a decreasing term life insurance policy that’s added to a car finance contract.
The word “decreasing” means that the payout amount is designed to cover the loan balance at any given point in the loan term. As the loan amount is reduced through payments, the insurance coverage also decreases to match the balance owed.
The word “term” refers to any insurance policy that covers a fixed period, is non-renewable and builds no cash value (you can’t borrow against it). Unlike some auto insurance policies (depending on the state), the cost of credit life insurance isn’t based on the insured’s FICO scores while, in some states, age limitations are placed on which borrowers can and cannot take out a policy.
Terms of purchase
Borrowers who decide whether or not to get credit life insurance before the loan documents are signed. The monthly cost is based on the initial loan balance and the cost is added to the amount financed, which also raises the monthly car payment.
The pros and cons
Only borrowers themselves can decide if they need credit life insurance. Here are some points to consider:
1. Peace of mind – if a borrower should die before the loan is paid off, the insurance coverage will pay the remaining balance and their estate won’t be responsible for any balance due
2. Convenience – since the insurance premium is included in the car payment, there is no additional bill that needs to be paid.
1. Cost – typically, credit life insurance is more expensive to buy than a comparable decreasing term life policy.
2. Interest expense – because the cost of insurance is added to the loan, interest is also being charged on the policy cost.
3. Single borrowers – if there is no co-signer and the borrower is single, even if they were to pass away their family could not be held responsible for any loan balance.
The Bottom Line
Only borrowers can decide the need for credit life insurance. If they have a family or co-signer and they’re concerned about their ability to make loan payments, they should first check the cost of a decreasing term life insurance policy before signing up for one whose cost will be rolled into an auto loan.
One more thing: Auto Credit Express specializes in helping applicants with car credit issues find dealers that can give them their best chances at auto loan approvals.
So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loans application.