Understanding personal loan insurance cover

Understanding personal loan insurance cover

A personal loan can help you when you need money to buy a car, take a holiday, or renovate your home. Like other loans, you need to make regular repayments and repay the total loan amount in a timely fashion to avoid any negative impact on your credit score. You may wonder what your options are if you’re unable to meet the repayment timelines due to uncontrollable circumstances. One option could be taking out a personal loan insurance policy, so it’s good to know how it can help in this situation.

One reason you may struggle to make your repayments is if you’re unable to continue working. Whether this is due to an illness or an accidental injury, or if you lose your job. Personal loan protection insurance can help you to cover the repayments. 

Is it mandatory to take insurance for a personal loan? No, but it can safeguard you against unforeseen situations that may affect your ability to make timely repayments. You can buy a personal loan protection policy either when you take the loan or later.

What does personal loan protection insurance cover?

What is covered varies based on the type of policy and your situation. Some of the typical issues that will be covered in the policy include: 

  • Loss of income: If an accident, injury or a severe ailment affects your earning capability. The policy may offer assistance until the loan is repaid or for a set period, or until you resume work.
  • Loss of employment: If you lose your job, you can file a claim for assistance under this policy. However, the policy benefits are not available if you resign or accept voluntary retirement or redundancy.
  • Loss of life: Some insurance policies may repay the outstanding balance of your personal loan if you suddenly die, saving your family from a load of debt.

Check the policy’s product disclosure statement (PDS) to know more about the terms and conditions specific to the policy you’re looking at purchasing.

Are there any eligibility criteria?

Like any other insurance policy or financial product, there are eligibility criteria you will need to fulfil before applying for a policy. Some of these include your age, type of employment, and residential details. Insurers may also have other requirements if you need personal loan insurance cover for a larger loan amount, usually exceeding $20,000. Some financial institutions may offer this insurance only if you also take out the personal loan with them. You can check with your lenders to understand more about the eligibility criteria for a personal loan protection insurance policy.

What is the cost of a personal loan protection insurance policy?

Personal loan insurance costs are calculated on several factors. These include the type of cover, the loan amount and its duration, the monthly repayments of the loan, your age, and if it is in a single name or jointly held.

Is there a waiting period?

There may be a waiting period, depending on the policy, between its start date and the time when you can file a claim. There might also be a period in which you have to wait after you become unwell or are injured or lose your employment before you can file a claim.

Some providers offer a cooling-off period, during which you can cancel the policy and receive a refund of the premium you’ve already paid. If you cancel the policy after the cooling-off period, the insurer may not refund the entire premium amount.

What are some benefits of a personal loan protection policy?

If you’re unable to work, you can feel good knowing that your loan will be repaid, which gives you and your family complete peace of mind. A personal loan protection policy also provides financial protection to your family in case of your untimely death.

If you’ve taken out a personal loan, and fail to make repayments, your credit score suffers. With a personal loan protection policy, you’re able to continue making timely repayments even when you’re unable to work which safeguards your credit history.

A personal loan protection insurance policy can be purchased from your lender when you take out your loan or from an alternate insurer. It’s best to make sure you understand what is personal loan insurance before you decide to purchase a policy. The best way to get a better understanding of the policy is to read the PDS carefully and research various options to find the best deal for maximum benefits.

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Learn more about personal loans

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

Can unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

What are the Westpac personal loan eligibility criteria?

The process to apply for a personal loan from Westpac is simple and can be done online. To be eligible for a Westpac Bank personal loan, you must meet the eligibility criteria. These include:

  • You should be over 18 years old
  • You must be a permanent resident or hold a valid visa with confirmed employment in Australia
  • You should earn a regular and permanent income of at least $35,000 before taxes

If you feel you meet these eligibility criteria, you can apply for a personal loan with Westpac. With your application form, you’ll also have to submit the following documents:

  • Personal details including name, contact information, and residential address 
  • Proof of identity such as drivers licence or passport details
  • If you’re self-employed, you’ll need a list of assets, savings, investments, and liabilities as well as your most recent tax return information
  • If you’re an employee you’ll need to submit information related to your employment and finances like bank statements and payslips

Westpac Australia personal loans are available for amounts from $4,000 up to $50,000 and loan terms of up to seven years.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Can you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.