Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure
It’s hard to predict what will happen after you take out a loan. If an accident or unexpected job loss pushes you into defaulting on your payments, it can seriously damage your credit and finances. Credit insurance is designed to prevent the worst-case scenario if you find yourself unable to repay your loan. But it can be expensive and, ultimately, may not be worth the cost.
Credit insurance is a type of insurance that covers your repayments if you can’t make them due to unforeseen circumstances. You might also see lenders refer to it as payment protection or payment protection insurance. It can prevent default and damage to your credit score if you become disabled or unemployed before your loan is fully paid off, and it typically lasts the life of your loan.
Your lender might suggest credit insurance if you have less-than-perfect credit and are looking for a car loan, auto equity loan, mortgage or unsecured personal loan. It’s also often suggested to borrowers ages 65 and older.
No, it’s illegal for a lender to force you to buy credit insurance, according to the Federal Trade Commission (FTC). If a lender is pressuring you to buy it, report them to your state attorney general, state insurance commissioner or the FTC.
There are five common types of credit insurance you might come across, though many lenders bundle them together:
The cost of credit insurance depends on personal details and your loan, including:
The Federal Trade Commission and other consumer watchdog groups warn that credit insurance isn’t always necessary. Ask yourself the following questions to learn whether you or your situation could benefit from credit insurance:
Credit insurance isn’t always a helpful addition to your loan — especially if it makes your loan more expensive than you can afford. When considering this protection, know that:
An untrustworthy lender might try to sneak credit insurance into the terms and conditions of your loan. It’s another reason to carefully read your loan contract before you sign it.
If you notice terms that sound like they’re referring to something like credit insurance, ask your lender. The FTC recommends that you find another provider if yours tries to pressure you into buying credit insurance.
Not sure whether credit insurance is right for you? Consider one of these options instead:
Credit insurance might protect your credit score from the effects of default if you’re unexpectedly unable to pay off your loan. But it’s often more expensive than life or disability insurance, and it can significantly increase the cost of your loan. Before signing up, look into the cost of a traditional insurance plan or setting up an emergency fund that can cover you in the future.
Learn more and compare lenders in our comprehensive guide to personal loans.
Strategies to help you make the most of your retirement savings.
NFTs take many forms, and NFT art makes up a large portion of the market.
Learn how to earn interest on your cryptocurrency using Coinbase exchange. Finder’s guide to earning on Coinbase has information on Coinbase Learn, staking and DeFi.
Compare car insurance rates and features that serve Stockton.
Alternative financing that lets you tap into the value of your crypto without having to sell it.
MoneyLion is a pay advance app stacked with features — and hefty fees to match. We’ve lined up 6 alternatives to help you go easy on your wallet.
Gravity Lending matches borrowers with lenders so you can get the best vehicle refinancing deal out there.
A simple online form to find lenders — but it lacks specific information to help guide your choice.
The 5 best life insurance companies for parents at different stages of life.
