by Steve Cypher on Thursday, June 24th, 2010
If you plan on financing your next vehicle with auto loans for bad credit you should know what credit life insurance is and if you really need it.
Where we fit in
If you’re reading this, you may be one of thousands of Americans who find themselves in the position of having to finance their next car with a bad credit auto loan. As part of our business at Auto Credit Express, we have helped thousands of applicants raise their credit scores and reestablish their car credit by filling out our online car loans with bad credit loan application and financing a vehicle with a bad credit car loan through one of our affiliate dealers. By paying off the loan in a timely manner, these buyers have a good chance of starting a new chapter in their lives.
The alternative, buying a vehicle from a Tote the Note, We Finance Everyone car dealer, can be a problem because these dealers don’t report payments to any of the credit bureaus. On the other hand, taking out a loan with a bad credit lender and choosing a vehicle that’s too expensive can also create problems since this can stretch your budget and even result in repossession.
One thing we have learned from experience is that the key to a successful bad credit car loan means focusing on the basics. In this case, it means understanding both the pros and cons of credit life insurance.
Credit life insurance
Although this topic is not as much of a hot button as service contracts, it really should be. Credit life insurance is a form of term life insurance. Term insurance refers to an insurance policy that is in force for a fixed period of time and cannot be renewed. It is also a form of life insurance that builds no cash value.
In addition to being a term life policy, credit life insurance is also what is known as a “decreasing” term policy. This means that the policy is designed to cover the amount of the loan. As the loan is paid off, the loan balance decreases and the amount of life insurance also decreases to match the amount owed on the loan contract.
Is credit life insurance worth the cost?
That is a decision that is entirely up to you. Here are the facts:
Pros:
1. Peace of mind – it will pay off your car if you should die before the loan contract is paid off.
2. The payment is added in and becomes part of your car payment, so there’s no individual insurance premium to pay.
3. Your estate won’t be encumbered with the loan balance or loan payments if you die before the car is paid off.
Cons:
1. Although the cost of credit life insurance is sometimes regulated by the state, it can be much more expensive than taking out a separate term life insurance policy for the loan amount.
2. In addition to paying the insurance premium, you are also paying interest on the insurance premium.
3. If you are single and have no dependents, you probably don’t even need life insurance. Even if you do have a family, they are not required to pay off the loan unless their names are also on the account.
4. Most credit life insurance policies don’t cover pre-existing medical conditions and if you turn 70 during the policy period, coverage often stops at that time.
How to purchase credit life insurance
If you decide to buy credit life insurance, you usually have to do it at the same time you take out your car loan. The monthly premiums are based upon the original loan balance and the cost of the policy is added to the finance contract and the additional amount is added to and becomes part of your monthly car payment.
Beware of scams
In most states, a lender can’t require you to buy credit life insurance in order to be approved for a loan. If the car salesman insists this is the case, check with your state insurance commissioner before signing on the dotted line. In most cases, you are also allowed to cancel the insurance at any time during the term of the contract. Sometimes this results in a lower monthly payment, although in many cases either the amount is refunded to you at the end of the contract in the form of a pro-rated payment or an earlier payoff date.
As we see it
Whether or not you take credit life insurance is a decision that you will have to make. If you have a family and are worried that they might not be able to make payments on your car if you die (and their name also appears on the contract), you might want to look at the costs of term life insurance before you sign on the dotted line for credit life insurance as part of a car loan.
At Auto Credit Express we have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. Our web site can help you determine how much car you can afford and, unlike other sites, our toll free customer service number is listed on every page, in case you have any additional questions.
So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.
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