Loans need security, no question about it. Therefore, credit intermediaries and banks in Austria always check the creditworthiness of the borrower before taking out an installment loan according to strict guidelines. On the one hand, this serves the security of the consumers themselves. On the other hand, of course, the respective bank also protects itself against possible payment defaults as part of the loan repayment.
In addition, banks generally also offer residual debt insurance for credit. This enables the prospective loan holder to protect himself and his relatives in the event of death, illness or unemployment, for example.
Residual debt insurance – what is it exactly?
A residual debt insurance, often also known as a residual credit insurance or credit default insurance, is an additional option to cover ongoing credit costs that can no longer be paid as planned in the event of the borrower’s death, sudden illness and disability, or unemployment . This can make sense, for example, to protect your family or surviving dependents from major financial losses, or even to protect the existence-threatening consequences of over-indebtedness.
In addition, the mandatory RKV degree also serves as additional credit security for the lender. As such, it is assigned to the relevant bank or credit intermediary when the loan agreement is concluded.
Nevertheless, many borrowers in Austria are rather skeptical about such additional protection for consumer loans – and there are good reasons for that.
Residual debt insurance – mostly expensive and often unnecessary
As nice and safe as it sounds, securing your loan rates with insurance, for example against unemployment or incapacity to work: It usually only makes sense at first glance. Installment credit or residual debt insurance is usually very expensive – and sometimes not very helpful in the worst-case scenario.
In fact, RKV contributions that are concluded together with a loan usually contain relatively high commissions for the lender or credit intermediary. For the borrower himself, such additional protection means considerable additional costs – which significantly – and often unnecessarily – increase the total cost of the loan.
The borrower pays the insurance premium including agency fees as a one-off amount at the start of the contract. This usually increases the loan amount by several percent – especially with higher loan amounts and longer terms, this can quickly add up to several thousand euros.
Furthermore, the cost of residual debt protection is not stated in the effective interest rate. This often obscures the current price of the loan when you take out insurance. In very unfavorable cases, this can more than double – especially in times of very low lending rates like the current one.
In addition, only a few banks actually take out additional debt insurance to actually improve credit scoring. The deciding factor for a cheap loan is and remains the own creditworthiness of the prospective loan.
Consumers should also pay attention to the exact contract details when it comes to RKV conclusion. Because, despite extensive safeguards, some residual protection insurance often pays only a limited amount or not at all due to a number of exclusion clauses and waiting periods. It is important to take a close look here and, if necessary, seek advice from a neutral insurance expert.
Tips on residual debt insurance for loans
- When taking out an installment loan, you should carefully examine possible offers from residual debt or installment protection insurance. In order to protect survivors and the family in the event of death, life insurance is often the best and cheapest alternative.
- If you already have an RKV degree in connection with a current loan, you can usually terminate extraordinarily. For example, if you reschedule the loan or repay it in full prematurely. The bank or intermediary must then partially reimburse the one-off amount.
- If the costs for ongoing credit insurance for your loan seem too high, a look at the contract details can also be worthwhile. It may even be possible to terminate the insurance properly if your contract allows it. In this case too, the unused one-off amount will be credited to the credit account.