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.
If you buy insurance, look at the insurance:
The best way to avoid being “confused” with the savings on car loans is to consider part of the car insurance, look at conditions and compare options.
Keep in mind that one thing is to save on the price of car insurance and quite another is to “save” benefits. If the price of insurance is cheaper because it cuts benefits you should consider if what they offer you is enough or if it is worth it or not to pay a little more.
Price comparisons must always be made with insurance under the same conditions, because only then will you find the cheapest price insurance without “savings” being a matter of cuts.
On the other hand, when it comes to car insurance, you should make numbers and see if the savings in the interest rate compensates you taking into account the price of the insurance.
Remember also that hiring car insurance is not always a matter of price. If what you are looking for is basic third party insurance that only covers the mandatory civil liability, surely the most important thing is the price.
But if you want to take out extended third party insurance or full risk insurance you have to take into account many factors, review the coverage, conditions, limits, and compensation, without forgetting the franchises in the case of all risk insurance.
As a further reading we recommend how the “auto loan may influence your car insurance“.