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- Did you know that lenders may offer payday loans and installment loans along with credit insurance?
- This type of insurance, which can be quite costly, supposedly safeguards you in case you miss any loan payments.
- Remember, it is completely optional to purchase this insurance. Be cautious if a lender insists that it is mandatory!
Understanding Payday Loan Insurance
Did you know that some lenders offer loan insurance along with payday or installment loans? This insurance is actually quite helpful as it provides added protection to borrowers who may have difficulty repaying their loans on time.
Payday loan insurance, which is optional, ensures that your loan payments are covered in certain situations. For example, if you become sick or injured and are unable to work, become disabled, or sadly, pass away, the insurance will cover your payments to the lender.
If unforeseen circumstances or emergencies prevent you from repaying your loan on time, this insurance can be a saving grace by protecting your credit score. So, it’s definitely worth considering if you want to safeguard yourself from any potential financial setbacks.
How can I obtain Credit Insurance?
Typically, when you apply for a payday loan, you have the option to purchase credit insurance directly from your lender. They may present an insurance policy to you as part of your loan application process, but they cannot force you to purchase it.
Should I Consider Credit Insurance?
When considering whether to purchase a credit insurance policy from a lender, it’s important to think about your specific needs, available options, and any potential costs involved.
You may come to the realization that credit insurance is not necessary for you. It’s worth noting that credit insurance can be quite expensive, with potential hidden fees. Additionally, in your particular situation, there may be other types of coverage that are more suitable. For example, life insurance could be a more cost-effective and practical choice compared to credit insurance.
Advantages of Credit Insurance:
- If you miss payments, credit insurance will provide coverage
- In the event of unemployment or disability, insurance can continue to meet repayment obligations
- Credit insurance can cover all or part of your loan if you pass away, preventing debt burden
- It helps you avoid damage to your credit score
Disadvantages of Credit Insurance:
- Credit insurance is usually expensive
- There may be hidden fees involved
- If the insurance premium is added to the loan, you’ll have to pay additional interest
- There might be other types of coverage, such as life insurance, that may be more appropriate
How to Evaluate Credit Insurance Before Making a Decision:
- Consider the amount of the premium you’ll have to pay.
- If the premium is financed with the loan, be aware that it will increase your loan amount and you’ll have to pay more interest and potentially more points.
- Check if you have the option to pay the premium on a monthly basis instead of including it in your loan.
- Calculate how much lower your monthly loan payment would be without the credit insurance.
- Determine if the insurance covers the entire length and amount of your loan.
- Find out the specific limits and exclusions regarding the payment of benefits.
- Check if there is a waiting period before the insurance coverage becomes effective.
- If you have a co-borrower, inquire about their coverage and cost.
- Ask about the possibility of canceling the insurance and the refund options available.
If you do not wish to purchase credit insurance, simply inform the lender of your decision.
Can I decline the insurance offered with my loan?
Insurance for your loan is entirely optional!
Remember, you are not obligated to purchase payday loan insurance from your lender. If your lender is persistently pressuring you to get insurance, it may be a good idea to explore other options. Be cautious if a lender insists that insurance is a requirement. In such cases, it is advisable to avoid that loan and carefully review the loan documents for accuracy.
It’s important to know that lenders cannot deny you credit solely because you choose not to buy optional credit insurance. They also cannot reject your loan application if you decide to purchase insurance from a different provider instead of directly from them.
If a lender informs you that you will only receive the loan upon purchasing optional credit insurance, please report the lender to your state attorney general, your state insurance commissioner, or the FTC.