Car loan linked to car insurance – confusing new buyers

As in the case of mortgages or any other loan, when you apply for financing to pay for your car you get insurance proposals of all kinds.

For example, with any loan or credit the entity, be it the bank or any other credit company, will surely offer you life insurance linked to the loan. In the case of loans to buy a car, many banks will also offer you to buy insurance with them.

Before proceeding, remember that it is not obligatory to contract any type of insurance other than the basic third party insurance and that, under no circumstances, the life insurance linked to the payment of the loan is not obligatory.

Also do not forget that you can hire insurance with whomever you want and cannot refuse the operation for not taking out insurance, whatever it may be.

Do not get confused:

It is common for the entity to which you apply for financing to offer you a lower interest rate on the loan if you hire car insurance with them.

This discount may seem interesting, although you have to assess many aspects to decide if, comparing all the factors, it really compensates the savings on the loan or, although it is more expensive to pay, in the end, it compensates by comparing insurance with insurance companies.

In the first place, there are more options than those of the lender to contract payment protection insurance with the loan. Even if it takes a little time, it is worth reviewing how much it costs to secure a loan with an independent entity and, in case you get a discount for contracting payment protection insurance, compare the actual savings.

Read more about how financing the car affects the insurance here.