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Understanding Credit Disability Insurance on a Car Loan

Yet another choice dealership finance managers may give borrowers with poor credit is the ability to roll the payments for a credit disability insurance premium into their auto loan
Understanding Credit Disability Insurance on a Car Loan
Protecting a car loan

Finance managers at car dealerships sometimes refer to it as part of “fully protecting” an auto loan when they speak with borrowers including those with damaged credit. That description is fairly accurate and before making a decision consumers should have a basic understanding of how credit disability insurance works.

Here at Auto Credit Express we know this kind of information is helpful because for more than twenty years we’ve been assisting car shoppers with bad credit that are looking for online auto loans find those dealers that can offer then a real chance for auto loan approvals.

So what is credit disability insurance?

Credit disability insurance

Finance managers usually call it “credit disability” and it’s essentially a health insurance policy that can be added to an auto finance contract.

Unlike credit life insurance that only benefits the lender, credit disability insurance offers advantages to both the lender and the buyer as it will take responsibility for making the monthly payments to the lender if the borrower becomes sick or disabled and is unable to work.

How credit disability works

Disability policy benefits typically start once the insured is either injured or becomes sick. The waiting period to receive any benefits is anywhere from 14 to 90 days from the onset of the disability, depending on how the policy is worded. Once the waiting period is complete, the insurance company will begin making the monthly 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 a permanent one in order to receive the benefits from one of these policies.

Buying a disability policy

If they want the cost included in their car payment, borrowers must decide whether or not to get credit disability insurance before any loan documents are signed. The monthly cost is based on the initial loan balance and is added to the amount financed. This means that the monthly car payment will also increase, reflecting the added cost.

The pros and cons

Like any other loan option such as credit life insurance, only the borrower can decide if they need this coverage. Here are a few points to consider:

Pros:

1. Peace of mind – your car payments will be made if you become either temporarily (coverage varies) or permanently disabled
2. One payment – the insurance premium is part of car payment so there is no additional monthly bill to pay.
3. Not tied to FICO scores – Unlike some insurance policies, low credit scores are no problem and won’t raise the cost of credit disability insurance

Cons:

1. Cost - Coverage can be more expensive than a stand-alone individual disability insurance policy.
2. Interest charges – since it’s rolled into the loan, interest is added to the cost of the premium every month – not the case with a separate disability policy.
3. Conditions - some policies will not pay if there is a pre-existing condition (a health-related problem diagnosed within 6 months of your application for coverage)
4. Alternate coverage – some borrowers may already be covered or eligible for some type of disability coverage through their employers

As we see it

Consumers with poor credit who are concerned that they might not have be able to make loan payments if they become disabled should first check their insurability as well as the cost of a stand-alone disability policy before signing up for one whose cost will be rolled into an auto loan. They should also check with their employer to see if they’re already covered through their workplace.

One more tip: Auto Credit Express matches consumers, even those that believe their only option is a BHPH car loan, with dealers that can offer them their best opportunities for approved auto loans.

So if you’re ready to establish your car credit, you can begin now by filling out our online auto loan application.

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