Indiana Department of Financial Institutions low-income consumer credit: tool or trap?



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TYPES OF CREDIT INSURANCE



Credit Life Insurance. . . .
Credit life insurance pays the gross or net amount of the credit transaction owed at the time of death. There are three types of credit life insurance:
Single life insurance covers the life of a single debtor in the transaction. If single life insurance is taken out on a transaction that both spouses signed, either the husband or the wife is the insured.

 

Joint life insurance covers the life of two debtors, usually the husband and wife.


Single and joint life insurance are reducing term insurance. This means the amount of insurance decreases as the balance of the credit transaction is reduced.
Level term life insurance is placed on single-pay credit transactions. The amount of the insurance does not decrease.
Credit Accident and Health Insurance. . . .

also known as Credit Disability Insurance


Credit accident and health or disability insurance make payments on the credit transaction when the insured is unable to work due to a disability such as an accident or a health problem.
The insurance takes effect after 7, 14, or 30 days of disability, then is payable from that date or is retroactive to the date of the accident or illness. The number of days and whether the period is retroactive or not depends upon the policy.
Unemployment Insurance. . . .
Unemployment insurance makes payment on the credit transaction in the event the insured becomes unemployed. Ask specific questions about unemployment insurance since policies may offer different benefits.

COST OF INDIANA CREDIT INSURANCE

Credit insurance premiums are based on the gross amount of credit which includes the principal balance, including the credit insurance premium, and the interest.


Indiana Single credit life insurance rates. . . .
Single credit life insurance rates are $.65 per $100.00 of the initial insured indebtedness per year in Indiana. For example a loan with a total indebtedness of $1,000 for a term of 3 years would have a single credit life insurance premium of $19.50.
Indiana Joint credit life insurance rates. . . .
Joint credit life insurance rates are $1.08 per $100.00 of the initial insured indebtedness per year. In the above example, the joint credit life insurance premium would be $32.40.
Indiana Credit life insurance premiums on monthly balances outstanding. . . .
Credit life insurance premiums on monthly balances outstanding such as charge cards are $1.00 per $1,000.00 per month.
Indiana Level term life insurance rates. . . .
Level term life insurance rates are $1.20 per $100.00 of the initial insured indebtedness per year. A single payment transaction for $1,000.00 payable in 3 years would have a level term life insurance premium of $36.
Indiana Accident and health insurance rates. . .
Accident and health or disability insurance rates are based on a period of months of indebtedness, the waiting period, and whether or not the benefits are retroactive to the date of accident or illness per $100.00 of initial insured indebtedness. In the example of a $1,000.00 loan for 3 years, the premium for single accident and health insurance would be $38.00 for a 14 day waiting period with retroactive benefits.
Unemployment insurance rates. . . .
Unemployment insurance rates are based on approval from the Department of Insurance based on the terms of the policy.
WHAT IF THE CREDITOR REQUIRES CREDIT INSURANCE?
A creditor can require credit insurance on a loan; however, if it is required, it is no longer an allowable additional charge and the premium/s must be included in the finance charge and reflected in the annual percentage rate disclosed.
If a creditor states you must have credit insurance in order to get the loan, do not sign that you desire the insurance and make sure that it is not disclosed as an additional charge in the itemization of the amount finance. If it is and they want you to sign that you desire the insurance, they should be told that practice is a violation of federal Regulation Z and the Indiana Uniform Consumer Credit Code, contact our department.

PROPERTY INSURANCE

If the loan is secured by personal property, the creditor can require that the property be insured. You must be able to select your own insurance. If the creditor has insurance available, they must give you the cost of the premium and the term of the insurance.


If you get your own insurance, you must be sure the insurance shows a loss payee to the creditor and that the creditor gets a copy of the original insurance policy and a copy of renewals of the policy.
If the creditor does not receive proof that the property is insured, they can secure insurance and add it to your account along with finance charges on the premium. The cost of the insurance placed by creditors is usually more expensive then insurance that you could secure.

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The Indiana Department of Financial Institutions, Division of Consumer Credit has many other credit related brochures available, such as:
Answers to Credit Problems

Applying for Credit

At Home Shopping Rights

Bankruptcy Facts

Buried in Debt

Car Financing Scams

Charge Card Fraud

Choosing A Credit Card

Co-Signing

Credit and Divorce

Credit and Older Consumers

Deep in Debt?

Equal Credit Opportunity

Fair Credit Reporting

Fair Debt Collection

Gold Cards

Hang up on Fraud

High Rate Mortgages

Home Equity Credit Lines

How to Avoid Bankruptcy

Indiana Uniform Consumer Credit Code

Look Before you Lease

Mortgage Loans

Repossession

Reverse Mortgage Loans

Rule of 78s – What is it?

Scoring for Credit

Shopping for Credit

Using Credit Cards

Variable Rate Credit

What is a Budget?

What is the DFI?


Call our toll-free number or write to the address on the cover for a copy of any of the brochures listed or for further consumer credit information.





CREDIT

INSURANCE

CREDIT LIFE



CREDIT DISABILITY
UNEMPLOYMENT



DEPARTMENT OF FINANCIAL INSTITUTIONS


Consumer Credit Division

30 South Meridian Street, Suite 300

Indianapolis, Indiana 46204

317-232-3955

1-800-382-4880



How Much Credit Obligation Should we Incur?

Every once in a while some writer comes up with a formula to guide a family in determining what percentage of its income should go for rent and other necessities and finally what percentage of the weekly or monthly paycheck can be set aside safely to meet installment or credit commitments. The more we study these hard and fixed tables or formulas, the more sure we are they are practically useless except as a rule-of-thumb guide.


The only sure-fire way to determine how much it is safe to obligate ourselves to pay is first to learn how to make up an accurate, sensible personal or family budget.
While many a family that has never made a budget is using credit to full satisfaction and paying all accounts just as agreed upon, it is extremely good training in financial management to know by experience how to budget.
Budgets help you to know how much is left after paying the house payment, utilities, food, clothing, gas, etc. You can then determine if you can buy that new car or furniture and be able to afford the monthly payment.
Our own carefully planned budget will tell us, as no set formula ever could, how much we can safely pay each month for installment credit. See our brochure What is a Budget?

What Should the Down Payment be?
After you have decided you can afford to make a purchase on credit, you will have to decide how much you have available to make as a down payment. The best thing to do is to make as substantial a down payment as possible without upsetting the family's budget. The larger the down payment, the smaller the unpaid balance and the finance charge will be.
There is, however, no purpose in making a down payment so large that it robs the food budget or makes it difficult to meet the next regular monthly payment when it comes due. It would be better to make a small down payment on a purchase than to borrow money to make a larger deposit. Here nothing would be accomplished except to muddy the waters with the problem of repaying the loan as well as making payments on the installment contract.
There may even be a good reason to purchase on the installment plan without any down payment, if possible. You probably would not put a down payment on a furniture purchase. You would figure on how much you would have to pay for the term of the account and if that payment fits in your budget, you can make the purchase without a down payment.
Generally speaking, a down payment should be at least 10%, but this is "rule-of-thumb, for it should often be 25% or even more. If the seller requires a specific down payment, make sure you can make it without a strain on your budget before you make your purchase.
Remember, the larger the down payment, the more quickly, easily, and cheaply the rest of the account will pay out.

How Long Should we Take to Pay Loans and Accounts?
We should not still be making payments on a purchase or a loan after we have ceased to benefit from it. There is no fixed rule to follow and no one can determine for another how long he should take to pay for a purchase. It is important to consider:
 What monthly payments will fit into the family
budget?
 How long will the product or service purchased last?
 How long will you remain interested in the product?
 How long will your income remain steady or
increase?
 The shorter the term of payments the less finance
charges.
Contract limits normally are longer as the size of the purchase or loan increases.  Contracts for furniture can range from 12 to 24 months while auto contracts can range from 48 to 60 months.
Market Conditions That Affect Terms we are Offered.
The merchant or lender is limited by market conditions when he considers what terms he can extend safely and intelligently. In our "free economy" there are in the background governing factors that influence quite a bit the amount of funds available for consumer credit use. The Federal Reserve System sets rates at which bankers themselves can borrow funds.
The banks in turn then set the rates of interest at which merchants and the lenders of smaller amounts can get the funds they need. The banking system in this way makes it easier or more difficult, cheaper or more costly for businesses and consumers to borrow.

The Indiana Department of Financial Institutions, Division of Consumer Credit has many other credit related brochures available, such as:


Answers to Credit Problems

Applying for Credit

At Home Shopping Rights

Bankruptcy Facts

Buried in Debt

Car Financing Scams

Charge Card Fraud

Choosing A Credit Card

Co-Signing

Credit and Divorce

Credit and Older Consumers

Deep in Debt?

Equal Credit Opportunity

Fair Credit Reporting

Fair Debt Collection

Gold Cards

Hang up on Fraud

High Rate Mortgages

Home Equity Credit Lines

How to Avoid Bankruptcy

Indiana Uniform Consumer Credit Code

Look Before you Lease

Mortgage Loans

Repossession

Reverse Mortgage Loans

Rule of 78s – What is it?

Scoring for Credit

Shopping for Credit

Using Credit Cards

Variable Rate Credit

What is a Budget?

What is the DFI?


Call our toll-free number or write to the address on the cover for a copy of any of the brochures listed or for further consumer credit information.

.







YOUR

CREDIT

CAPACITY



DEPARTMENT OF FINANCIAL INSTITUTIONS


Consumer Credit Division

30 South Meridian Street, Suite 300

Indianapolis, Indiana 46204

317-232-3955

1-800-382-4880
What is the Equal Credit Opportunity Act?
The Equal Credit Opportunity Act (ECOA) is the federal law which, among other things, says that everyone has the right to apply for credit without fear of discrimination on the basis of sex, marital status, race, color, religion, national origin, age, reliance on income from public assistance, or because you may have exercised rights under the Consumer Protection laws.

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