Although the banks only grant a loan to a customer who has a good credit rating, they still like to secure themselves. In most cases, this takes the form of residual debt insurance. Sometimes a loan is even linked to one. But in most cases, a loan without residual debt insurance is approved.
What is residual debt insurance?
In certain cases, residual debt insurance pays the loan when the borrower can no longer pay. The cases covered are illness, death or unemployment. The contributions to this insurance are included in the loan amount, which increases the cost of the loan. Usually the customer is not obliged to take out residual debt insurance. But it also happens that the banks simply refuse a loan without residual debt insurance.
If the bank requests residual debt insurance, the borrower does not necessarily have to take out insurance with the lending bank. He can also compare offers from other insurance companies and thus secure the cheapest offer.
When is residual debt insurance advantageous?
It is particularly advisable to take out residual debt insurance if it is a large loan amount. In real estate financing, a loan without residual debt insurance would be reckless, because this is about large sums. If payment defaults occur for the reasons already mentioned, the family would have to fear for the property if no residual debt insurance was taken out. However, if the loan amount is low, it is usually not worth taking out residual debt insurance.
If the bank does not want to offer a loan without residual debt insurance, you can either accept the offer or look for a bank where this insurance is not necessary. But it should be emphasized again that with large amounts of money it makes more sense to take out such insurance so that the family does not face financial ruin. Because a property quickly comes under the hammer, which also means losing your home.