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Auto Credit Insurance and Debt-Cancellation Add-Ons

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

Am I required to purchase an extended warranty, Guaranteed Asset Protection (GAP) insurance, or credit insurance from a lender or dealer to get an auto loan?

Generally you cannot be required to buy an extended warranty, GAP insurance, or credit insurance. In most situations, they are optional.

You have the right to walk away and look for a different dealer or lender if they are pressuring you to purchase optional products or services for your loan.

What if a dealer or lender makes it hard for me to turn down optional products on my auto loan?

Extended warranties, GAP insurance, and credit insurance are optional when you take out an auto loan. And, if an add-on product is optional and you decide to add it to your loan, you have the right to cancel it during the term of the loan, which can save you money.

An extended warranty or service contract on your vehicle pays the costs of some repairs, above what the manufacturer’s warranty covers or after the manufacturer’s warranty ends. GAP insurance covers the difference (or gap) between the amount you owe on your auto loan and what your insurance pays if your vehicle is stolen, damaged, or totaled. Credit insurance is coverage that makes your auto loan payments if you are not able to.

Before you sign the loan papers, ask the lender whether the loan includes charges for optional products.

If your lender or dealer says you are required to purchase a product like GAP insurance or an extended warranty, ask them to show you where your sales contract says it is required. If the contract does not explicitly state that it’s required, you cannot be required to purchase it.

If you are turned down for a loan because you refuse to buy optional products, you can submit a complaint with the CFPB. You can also file a complaint with the Federal Trade Commission (FTC) and with your state attorney general or state consumer protection office. If you’re in the military, you should report this to your installation Judge Advocate General (JAG) immediately. Use the locator to find your JAG Legal Assistance Office.

What is credit insurance for an auto loan?

Credit insurance is optional insurance that is designed to make payments to your lender if you die, lose your job, or become disabled. This insurance is optional.

When you are financing a vehicle, you might be offered credit insurance too. Before you decide to buy it, think about your choices and ask about the cost.

This type of insurance is one of several optional add-on products, including extended warranties and GAP insurance, that are not required and whose price can be negotiated. Adding credit insurance will increase your loan amount, which also increases the amount of interest you pay over the life of your loan. The products often have eligibility restrictions and based on a consumer’s individual circumstances, may not provide value.

Types of credit insurance

If you’re considering credit insurance, make sure you understand the terms of the policy being offered. There are four main types of credit insurance:

  • Credit life insurance – This pays off all or some of your loan if you die.
  • Credit disability insurance – Also called accident and health insurance, this type of insurance makes payments on the loan if you become ill or injured and can't work.
  • Involuntary unemployment insurance – Also called involuntary loss of income insurance. This insurance will make your loan payments if you lose your job due to no fault of your own, such as a layoff.
  • Credit property insurance – This type of insurance covers your vehicle if it is stolen or destroyed in an accident or natural disaster. This type of insurance generally pays you the value of your vehicle or the balance of your loan, whichever is less. In general, this type of protection is included as part of your regular automobile insurance policy, so cost comparisons can be especially important when considering acquiring separate credit property insurance.

You have the right to cancel these credit insurance products at any time and reduce your costs

Also, you may be entitled to a refund if you sell, refinance, or prepay your auto loan. If you do not have your paperwork, check with your lender, the provider, or the dealer you bought the car from.

If a lender tells you that you'll only get the loan if you buy the optional credit insurance, you can submit a complaint to the CFPB, your state attorney general, your state insurance commissioner, or the Federal Trade Commission.

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about auto loan negotiation

What are debt cancellation or suspension products offered with my auto loan?

In general, debt cancellation eliminates your loan if you die, or cancels the monthly payment if you become disabled, unemployed, or suffer some other hardship. Debt suspension may temporarily postpone all or part of your monthly payment while you are facing a hardship.

Debt cancellation or suspension products are generally offered to you by your lender or dealer as you’re finalizing your auto loan agreement. Similar to credit insurance, these products promise to provide protection if you experience certain hardships. But unlike credit insurance products, they are not regulated by state insurance officials. They are also optional add-on products that add additional costs to your loan, ultimately increasing the interest you’ll pay over the life of your loan. The products often have eligibility restrictions and based on a consumer’s individual circumstances, may not provide value.

Debt cancellation agreements

If you meet certain qualifications (and avoid the exclusions), debt cancellation offers the promise of eliminating debt if you die or canceling your monthly payment when disabled, unemployed, or if you suffer some other specified hardship.

Debt suspension agreements

Debt suspension products promise to temporarily postpone all or part of your monthly payment while you’re facing a specified hardship, but you are still expected to make up the payments in the future.

If you decide you need these products or insurance, there may be cheaper ways for you to obtain coverage. For example, life insurance may be less expensive and would allow your family or estate to pay off other expenses in addition to your auto loan.

If you have a complaint or a concern about this product, you can submit a complaint to the CFPB.

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about auto loan negotiation

What is force-placed insurance?

In order to get a loan to buy a vehicle, you must have insurance to cover the vehicle itself. If you fail to obtain insurance or you let your insurance lapse, the contract usually gives the lender the right to get insurance to cover the vehicle. This insurance is called “force-placed insurance.”

This insurance protects only the lender, not you, but the lender will charge you for the insurance. Force-placed insurance is usually a lot more expensive than what you can obtain by finding an insurance policy yourself.

If you have a complaint or a concern about this product, you can also contact your state insurance department or commissioner.

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

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