There are many instances in your life that you are forced to take financial risks like taking a loan for building a new home, buying a bigger car or spending on a trip abroad. Though you think that it is possible to make the payments and complete the loan term successfully without any mishap, life is unfortunately not that predictable.
Emergencies or accidents in life can make you renege on your payments and face the possibility of losing your property and getting a poor credit loom. So what do you do when faced with such a predicament? Using debt protection is one smart and very effective way out of this situation.
About Debt Protection:
Debt Protection is actually an agreement that is drawn between a credit organization and a member. According to the terms, if the member demises or faces disability upon which he becomes unemployed, or is taking an uncompensated leave of absence, the policy will cancel or suspend or postpone either the interest, or both principal and interest of the debt to help the individual.
The eventuality of delinquency, foreclosure and default in case of some untoward incidents that cause penalization from the credit union is reduced by the agreement.
Protection Benefits That Are Useful:
With a proper protection of debt, your business will benefit greatly. You need not take insurance licensing and the loan portfolio is protected because of the deflection of the loan defaults. The income generated is a non-interest type, which you can enhance further by selecting the appropriate features, advantages as well as the rates when you make the agreement.
Maintain a Comfortable Lifestyle:
In case of a situation wherein you are not able to make the loan payments and you face a risk of poor credit or face a huge financial crisis, having the right coverage that protects your debts and keeps your finances safe is necessary.
The loan payment protection coverage aids in relieving you of the financial burden caused by default, delinquency or foreclosure in case of an unexpected accident or mishap that befall you. The simple and easy to meet requirements for the eligibility is also an added plus in the coverage.
Loan payment protection coverage also helps to reduce the debt payment you have to pay or in some cases even cancel it outright. This lessens all your financial troubles to a great extent. Some of the commonly protected events that come under this list include
- Death caused by incidents that include situations like war.
- Disability due to cases of protected injury or illness where in the monthly loan payments are cancelled till the maximum possible limit under the payment protection agreement.
- Unemployment due to involuntary causes can also lead to cancellation of monthly repayments.
Types of Payment Protection Coverage:
The options vary depending on the specific requirements you have. Some of the common types include the consumer loans and credit card loans. The debt cancellation coverage makes every member who opts for the same type a specific fee.
The protection is bought only in the exact amount that you need to cover the loan balance. There are instances when some financial institutions like Bank of America Corp stopped giving out the debt cancellation due to concerns of signing up members under false securities.
This shows the necessity to peruse the terms carefully before you sign up for the debt cancellation coverage. Though the eligibility requirements are simple and you get the benefit of security for your family financially, a proper credit rating and collateral looking over the terms thoroughly will prevent any difficulties that may arise later on.
Considerations in Debt Cancellation:
Whenever it comes to purchases, it is vital to consider all the facets present. According to a study on Government Accountability Office, creditors earned more in terms of the loan payment protection by paying only 21% of what they received from the members. This makes their profits go overboard. This has made big banking corporations like HSBC, JP Morgan Chase and as cited earlier Bank of America to be sued for improper selling of the debt cancellation loans.
What Alternatives You Can Opt For:
Loan repayment protection is a sensible choice only when you predict some unforeseeable incident that prevents you from paying the bills. But in other situations there are a few alternative choices.
- You can save money by adding money to your savings account instead of paying for the debt cancellation loan and form a cushion for emergency needs.
- Instead of going on the defensive mode to deal with the debts, you can put up a good offense. Pay a larger share of your monthly income towards the debt payments and keep your credit rate balanced.
- Life insurance policies or even disability policies offer a better coverage and also favorable premiums than the debt cancellation schemes.
As debt protection is basically a loan, you need to have in-depth knowledge on the loan types and products present for getting the right coverage. Filing for a benefit, calculating the amount and the application of the payment to the loan should be carefully perused before you buy the loan.
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