Lenders often sell credit insurance alongside their payday loans. This insurance is designed to protect you against missed loan repayments, but they are not a requirement, and each borrower should consider carefully whether this insurance is the right choice for them. The payday insurance market is big business in the US – in 2022 there was $7 trillion written in insurance globally. $1.4 trillion of this was for the US market alone.
What is Payday Loan Insurance?
Payday loan insurance is a product that lenders often offer customers alongside loans intended to protect the customer in case of missed payments.
If a borrower misses a payment due to injury or sickness, they will miss their loan payments and therefore face damage to their credit score. The insurance covers borrowers who cannot make their payments, ensuring their credit scores are not damaged in these instances.
Do You Need Payday Loan Insurance?
You are not required to take out insurance on your loan, but many lenders offer it as an added security. It is up to you whether or not you decide to take out payday loan insurance, but you should keep in mind that it is not required.
If a lender tells you that you have to have insurance, review your papers to be sure they have been accurately drawn up, as this is a huge red flag. Lenders cannot deny you credit depending on whether you choose to take out optional credit insurance. You can also choose to take the insurance out with a different company, which should not impact your initial loan.
Any lender who tries to pressure you into taking out payday loan insurance is acting unethically, and you should try and have a look at another provider instead. You also have the option to report the lender to your state attorney general, your state insurance commissioner, or the FTC.
How Do I Get Credit Insurance?
Often, lenders will sell you credit insurance with your loan. You will be purchasing your insurance directly from this lender. Be sure that this lender is not pressuring you to buy it, or telling you that it is required.
Should I Get Payday Insurance?
Your first step should be to consider your requirements and your budget. If you feel you are likely to be out of work and unable to make your loan payments, this could be an option.
Credit insurance tends to be expensive, and many credit insurance products come with hidden fees. Check carefully before you sign anything to see whether it is within your budget.
Although credit insurance is a product that works well for many, other products can be less expensive, such as life insurance.
Advantages of Credit Insurance
The main advantage of credit insurance is that it protects your credit score. If you become unemployed, disabled, or sick, this insurance will continue to repay your loan.
If you pass away, your insurance will pay all or part of your loan to avoid leaving behind debt.
Disadvantages of Credit Insurance
The main drawback to consider is the cost. Credit insurance is not within everyone’s budget, and can even include hidden fees. If the premium is financed as part of the loan, you can even end up paying additional interest.
I Don’t Have Credit Insurance, But Now I Can’t Meet Repayments. Now What?
If you are a borrower who has opted not to take out credit insurance but are now struggling with repayments, don’t panic. Your lender is on your side, and should be able to assist you.
If you explain the situation to your lender, they will likely be able to curate a new repayment plan that keeps your new circumstances in mind.
However, if you feel helpless, consider contacting a financial advisor or seeking professional help.