How to Finance a Car with No Creditby Steve Cypher on Wednesday, March 13th, 2013
Car dealership finance managers sometimes refer to it as “fully protecting” an auto loan and even customers will bad credit will get a sales pitch on it once their credit application is approved.
We’re talking about credit disability insurance and here at Auto Credit Express we’re familiar with the issues surrounding these “payment protections” because we’ve spent the past twenty years helping car shoppers with poor credit find those new car dealers that can offer them their best opportunities for approved auto loans.
So what exactly is credit disability insurance and what does it have to do with how to finance a car with no credit?
Credit disability insurance
Finance managers usually refer to it simply as “credit disability” and essentially this product is a health insurance policy that can be added to an auto finance contract.
In the simplest terms credit disability insurance is designed to make payments to your lender if you become sick or disabled and are unable to work.
Benefits of these policies typically kick in once the insured is injured or becomes sick. The waiting period for these benefits to start is anywhere from 14 to 90 days from the onset of the disability, depending on the policy. Once this time has elapsed, the insurance company begins making the car payments. In most cases, but not always, payments are retroactive to the day the disability began. In addition, the disability doesn’t have to be permanent in order to receive benefits from one of these policies.
Terms of purchase
Borrowers must decide whether or not to get credit disability 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 and, in doing so, also raises the monthly car payment.
Pros and cons
Like credit life insurance, only the borrower can decide if they need this coverage. Here are a few points to consider:
1. Peace of mind – your car payments will be covered if you become either temporarily (coverage varies) or permanently disabled
2. One payment – the insurance payment is rolled into your car payment so there is no additional monthly bill you need to pay.
3. Not tied to your FICO scores – Unlike some insurance policies, the cost of credit disability insurance doesn’t get more expensive if your credit scores are poor
1. Cost - Coverage can be more expensive than a separate individual disability insurance policy.
2. Interest charges – since it’s rolled into the loan, you’ll be paying interest on the premium every month – not an issue with a separate disability policy.
3. Conditions – some policies will not pay if you have a pre-existing condition (a health-related problem diagnosed within 6 months of your application for coverage)
4. Alternate coverage – you may already be covered or eligible for some type of disability coverage through your employer
The Bottom Line
Only you can decide if credit disability insurance meets your needs. Before taking one out, however, first check with your employer to see if you’re already covered by a policy. If you are, you may not need it.
Always keep in mind, however, that if a disability would seriously affect your chances of keeping your car, it might be worthwhile to consider adding this type of coverage.
One more thing to consider: at Auto Credit Express we specialize in helping applicants with damaged credit find those dealers that can give them their best opportunities for auto loan approvals.
So if you’re ready to reestablish your car credit, you can begin now by filling out our online auto loans application.