Online Banking Login

Enroll Online

Lanco FCU Debt Protection

Protecting Against Heavy Damage If Financial Trouble Strikes

Saving up in case of setbacks such as medical emergencies or job loss can help you keep from incurring unexpected debt. But if you already have debts when crisis strikes, your savings might not be enough. Here’s how you can guard against a situation where you can’t make your payments.

Debt protection

Even if you planned out your monthly payments on your home or car for years, an emergency can set you back quickly and leave you with no way to keep up. Lenders such as Lanco Federal Credit Union provide debt protection programs, which cover some monthly loan payments for a term determined by the lender in the event of a death, disability or involuntary loss of job.

This coverage can keep you from defaulting on a loan, which can lead to worse situations such as foreclosure and a steep drop in your credit score. It acts as an optional safety net to prevent a downward spiral of financial losses. At some lenders, you may be able to opt out at any time.

GAP coverage

This is another type of arrangement that can help if you have an auto loan when disaster strikes. GAP coverage pays you the difference between an insurance settlement and what you still owe on a car loan if your car is totaled or stolen and not recovered. For example, if your car is damaged beyond economical repair when you still owe a hefty amount, your insurer is likely to pay you the market price for an equivalent vehicle. Especially for newer vehicles, your car has most likely lost value faster than you’ve paid off the loan. This can leave you with a “gap” of possibly a few thousand dollars or more between the settlement sum and what you owe on the loan, which you’ll still have to pay off.

Generally, GAP coverage tends to be best for new car buyers and those who opt for a longer-term loan, such as 48 months or more, or lease a car. Additionally, if you make only a small down payment or finance more than the car’s cost, this option may make sense. This sort of financial protection is commonly offered by lenders, car dealers and insurers, so shop around for the best rates and terms before making a commitment.

The next time you finance, consider whether this type of coverage could ensure you won’t default on a loan if dire circumstances arise. You can be prepared so that one emergency doesn’t set you or your family back for years.

by Spencer Tierney, NerdWallet