In the case of a car loan with residual debt insurance, the insurance provides additional protection for the borrower and the bank alike. However, only the borrower always has to pay. Many banks make the insurance mandatory and therefore only offer a car loan with residual debt insurance. The residual debt insurance must therefore also be taken out when granting credit, because lenders are reluctant to do without this insurance. Without this insurance, there is always a certain residual risk for the lender.
Are there advantages with a car loan with residual debt insurance?
Residual debt insurance is a special form of risk life insurance. This insurance is always related to taking out a loan. If a prospect chose a bank, the bank usually works with an insurance company. A borrower is thus insured against unemployment, against an extended illness and even against death. If the insurance is taken out in the overall package, all risks are covered. However, a prospective borrower can also choose sub-segments, whereby it is common for borrowers to take out insurance against the death.
If a prospective customer is asked by the bank to take out residual debt insurance, then the focus is not only on the security of the prospective customer. Lenders also have greater security with car loans with residual debt insurance. Should the borrower die, then the insurance will settle the loan. No health check is then required for a car loan with residual debt insurance. The insurance premiums are then in installments per month. The amount of insurance depends on the amount of the loan and the age and gender of the borrowers.
Is the residual debt insurance a cost driver?
Insurance can often make a loan significantly more expensive, especially if a prospective customer is over 40 years old and chooses a long term. A prospective customer can feel this, especially with so-called zero percent financing. There are no fees and no interest here, but the monthly installments are becoming more expensive thanks to the residual debt insurance.
From the residual debt insurance, the total amount is not shown in the annual percentage rate, so it is difficult for a prospect to compare the offers with each other. There has been a new consumer credit directive for this since June 2010, whereby a lender is obliged to state that residual debt insurance must be shown in the annual percentage rate. Those interested in credit should also always know that the banks do not make a bad profit on insurance from the commission. Many employees even receive a bonus if they have achieved many degrees.