Depending on the type of loan, loan amount and existing income, banks require certain collateral. The background to this is that in this way a possible payment default by the borrower, such as due to occupational disability or unemployment, should be prevented. However, it is also possible for a borrower to protect himself in the “case of the cases” with insurance.
To secure a loan, there are various options, such as special insurance.
Depending on the type of loan, there are various options for securing the loan. For example, in a real estate loan, it is common for a mortgage to be taken, while there are different possibilities for an installment loan. While in a car loan, as an example, usually the vehicle itself serves as collateral, it is possible in a purpose-tied loan, for example, to pledge securities or to assign the most diverse claims.
In addition, however, there is also the option of securing the loan with insurance. In this way, the repayment of the loan is guaranteed even if, for example, unemployment threatens or the borrower dies. In the case of the latter, at least the family is protected in this respect, so that the mourning is not accompanied by financial worries.
In addition to a death insurance, the usual insurance options also include residual debt insurance and classic occupational disability insurance.
Whole life insurance
The insurance starts in the event of death; However, it usually has to be sufficient not only for the repayment of the loan, but also for other things.
Death insurance is often referred to as term life insurance. As the name implies, it serves to ensure that in the contract beneficiary is in case of death of the borrower is able to credit continues to operate.
When concluding such insurance, it should be kept in mind, however, that in the case of death the sum insured often has to be used for various other things.
However, those who are looking for a pure loan protection, for those who are generally recommended rather a residual debt insurance, which in turn includes a kind of death insurance. This is especially true when it comes to real estate loans.
Payment protection insurance
Depending on what was agreed in the contract, the residual debt insurance in the event of death, unemployment and disability.
The residual debt insurance, on the other hand, offers more comprehensive coverage. However, it depends on what exactly was agreed in the contract.
For example, there is a general option here to protect the survivors in the event of death so that the family does not have to repay the loan. But that is not all, because it is also possible, if desired, to protect the borrower personally in the event of unemployment or even in the event of occupational disability.
Worthwhile payment protection insurance is especially when a long repayment term and high loan amount was agreed: Finally, can change a lot over a longer time frame.
This is the case, for example, when taking out a real estate loan; so that a residual debt insurance is usually worthwhile here. As a rule, it is the case that the bank even offers it on its own. However, there is usually no obligation to complete them. Thus, the borrower can decide for himself whether such insurance makes sense or perhaps not.
Another advantage of a residual debt insurance is that the borrower does not have to answer any health questions. On the other hand, a risk life insurance and a disability insurance scheme looks very different.
However, it must be remembered here that in the event of death due to a disease that was already known before the conclusion of the contract, there is no obligation to pay for the insurance. In addition, the insurance industry does not have to perform as well if a disability arises from a mental illness.
As the name already suggests, the insurance provides protection in case of occupational disability.
In the case of occupational disability insurance, this often looks a little different: Here, most insurance companies also cover a mental illness as the cause of incapacity for work. Accordingly, such insurance is usually a very good alternative. Although it is not specifically used for credit protection, it benefits from the fact that the private occupational disability pension helps ensure that loan repayments can continue to be made even if one is no longer able to practice one’s own profession.
For a large number of credit institutions, securing the loan through a disability insurance is a “must”: otherwise, these banks either even give no or only a lower credit.
Guarantor / second borrower
With the help of a guarantor or a second borrower, not only is it possible to hedge the loan, but it is also possible in a more difficult situation to obtain the loan at all.
However, another option makes it possible to hedge a loan: this is made possible by a guarantor or even a second borrower. While the second borrower signs the loan agreement, the guarantor, true to his name, assumes a guarantee.
If the actual borrower fails, or if, for various reasons, he is no longer able to pay off the monthly installments of the loan, the guarantor or the second borrower steps in here. This means that the person concerned then has to pay in full for the payment of the remaining loan amount. Accordingly, it should be well considered whether a guarantee is taken or the loan agreement is signed.
As a guarantor or as a second borrower you can use a variety of people. So it is conceivable, for example, to ask the partner, the parents or grandparents or siblings. However, other relatives or good friends are just as good.
However, it is not everyone’s right to “depend on” someone else for the desired loan, so to speak. In most cases, a dark aftertaste appears here. In addition, there may well be tensions that hurt the relationship or friendly relationship. As a result, aspiring borrowers often resort to insurance rather than credit protection than to a guarantee or a second borrower.
However, if the prospective borrower can not meet one or more of the bank’s requirements, then usually a guarantor / second borrower is the only option to get the loan. However, of course, each person must meet the various requirements.
In addition to a secure, regular income, the bank’s usual requirements include a good credit rating and a positive Schufa rating. In addition, banks usually place a high value on a German bank account as well as a German residence.