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Is It Legal That A Financial Institution Charge Interest On An Insurance Attached To A Loan?
25 Dec 2009Well I had to take a personal loan with a financial institution. They obliged me to take a loan insurance also that I had no choice to take otherwise they won’t give me the loan. The big problem now is that I did not see in the contract that since 5 month they made me pay interest on the insurance premium. the insurance cost me 2800 and everymonth I had to pay 28% interest on the insurance plus 28% on my original loan amount. Is it normal or legal to do that? Even if it is legal why consumers have to go through all these cheating and dishonest policies? it that normal??? Please help
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4 Responses to Is It Legal That A Financial Institution Charge Interest On An Insurance Attached To A Loan?
ISOintel
December 25th, 2009 at 7:42 am
If they loaned you the money to pay for the insurance, yes, it’s legal. Actually, premium financing for insurance may well have charged you more interest than that.
If they loaned you the money to pay for the premium, they aren’t charging you interest on the premium, they’re charging you interest on an additional amount that they loaned you to cover your “closing costs.” It’s not unusual for the price of insurance premiums or other things required for closing a loan (home inspections, etc.) to be added on to the loan amount so that they can be paid up front.
Although I do think 28% interest indicates that you’re taking it on the chin for some other interesting financial choices, hmm?
Suzanne: YPA
December 25th, 2009 at 1:51 pm
This depends on the laws in your state. In mine, it’s not legal to require credit insurance AND it’s illegal to require the premium be financed with the loan (but if the premium IS financed by the borrower’s clear choice, interest can be charged).
For a definitive answer, call your state’s insurance commissioner’s office and inquire about the insurance laws in your state.
mbrcatz
December 25th, 2009 at 4:00 pm
Wow, that’s really high! You didn’t read teh whole contract . . . zug! That’s as bad as the credit card companies! I suspect, however, that it’s an UNSECURED loan.
Best thing to do is pay the loan off ASAP, or refinance with collateral, to get out from under the interest.
tewodros
December 25th, 2009 at 10:32 pm
In many state is not legal to required loan insurance as condition for loan. If is not legal your state you can win big suit. Attorney General will make them.
If your state is legal then they can charge inteerest because they loan money for the insure.
But I think is not legal most state.