The recent coronavirus pandemic has everyone on the edge of their seats, and possibly on the very edge of their savings and budget. For borrowers who find themselves sick and unable to work, or who are required to self-isolate, there are many questions about what happens with your car if you can't make your monthly payments due to COVID-19. The answer could lie in purchasing credit disability, or accident and health insurance, with your next auto loan.
Credit Disability Coverage
Credit disability, or accident and health insurance, is a type of optional insurance coverage you can purchase with your car loan that can help you out in certain unexpected life events. If you fall ill or have an accident, this insurance makes payments on your auto loan while you’re unable to collect income.
Some credit disability insurance plans may only cover you for a certain amount of payments, or have a cap on how much they pay out. Often, the finance manager at a dealership can offer you some plans for this optional insurance, and they usually add to your monthly loan payment. You can also shop for different prices and rates yourself through different insurance companies while you’re researching your next vehicle.
Credit disability insurance isn’t usually recommended for borrowers unless they have a history of illness or disability – but, nowadays, you never really know. With the recent pandemic, many may be considering adding this coverage to their next car loan.
If You Can't Pay on Your Auto Loan
If you’ve been exposed to someone with the coronavirus, the CDC recommends isolating yourself for at least 14 days. While this is great for keeping others and your family safe, isolating yourself for two weeks while you’re sick could really hurt your finances. Not to mention, missing payments can cause some damage to your credit score.
While many people were able to collect unemployment during shelter-in-place orders, and while those workers were awaiting the unemployment checks, they may have drained their savings to stay afloat. Once that savings buffer/emergency fund is gone, it can be hard to build back up even with unemployment checks rolling in.
What happens if you don’t qualify for unemployment or you don’t have enough paid time off to collect income while you’re sick?
Once you start to miss payments on your auto loan, you’re likely to face a repossession. Lenders have the right to repossess your vehicle, since it’s still technically their asset until you’ve completed the loan. Some lenders may even take action and repo your car after one missed payment. How soon your lender starts the repo process depends on the language in your loan contract, so read carefully.
If you get sick, do you have enough savings to cover your vehicle payment for a month? Two months? This is where an optional insurance coverage can help.
Other Options When Life Happens
If you don’t want to pay for credit disability insurance, or you can’t afford it right now, you may not be out of luck if you get sick while you still owe on your car note.
If you’re current on your loan payments and you have an unexpected life event that threatens your ability to pay for your vehicle, you may be able to ask for an auto loan deferment plan from your lender.
These deferment plans usually involve pausing your loan payments for a little while, and tacking them to the back end of your loan. This allows you to catch up, rest, and, hopefully, avoid a default and/or repossession.
However, you need to act quickly. Most lenders aren’t going to consider a deferment plan for you if you’re already behind on payments. Get in contact with your lender as soon as you know you’re going to be out of work or sick, or at the very least, as quickly as you can. Odds are, they don’t want you to miss your payments either!
Considering all the different kinds of insurance coverage and shopping for cars is a big part of the auto financing process. However, with a lower credit score, finding a lender that can work with you is a hurdle that many borrowers find difficult to jump over. It doesn’t have to be hard if you start with us at Auto Credit Express!
Our network of bad credit dealerships spans coast to coast, and we match borrowers to dealers that are signed up with the lending options they need. To get the process started, fill out our free, secure, and no-obligation car loan request form. We’ll get to work looking for a dealership in your area.