Credit despite illness: Beware of the debt trap
As a recipient of sickness benefit, you are in a difficult phase of life.
You may have a serious, but in any case long, illness. At the same time, your financial situation has deteriorated due to the loss of regular income.
And let’s not forget: It is difficult to assess what your economic future will look like.
Will you be completely healthy and able to work again? Do you get a job again immediately after a long illness? Is your sickness benefit extended? Or are you entitled to a pension at the end of your sickness benefit?
In such a life situation, borrowing is always a hardly calculable risk not only for the bank, but also for you as a borrower.
The risk that you will financially overdraw yourself and fall into debt is undeniable. It is real.
So be very reluctant to borrow. Above all, play with open cards towards lenders.
In particular, we cannot recommend a stock borrowing.
The trick of quickly applying for a loan with the proof of income in the past few months immediately after detection of the illness can have serious financial and legal consequences.
For example, the remaining loan can be due immediately when the truth comes out.
If you urgently need liquidity, the use of existing assets is usually more economical and more reasonable.
A sale or early termination of assets or insurance may not be necessary. As we will show in a separate chapter below, there are better solutions.
Credit despite sick pay: creditworthiness as a hurdle
Sickness benefit is a temporary social benefit. It is paid after the six-week continued payment of wages, if the same illness persists and leads to inability to work.
Sickness benefit is then paid until the end of the incapacity to work, however for a maximum of 78 weeks. An extension is possible in individual cases.
Social security benefits are paid according to calendar days. The basis of calculation is the gross wage. You are entitled to 70% of your gross salary, but not more than 90% of your net wages.
Low monthly payments do not in principle exclude borrowing if the salary exceeds the seizure allowance. If the income is low, this initially only has an impact on the possible loan amount.
What prevents many banks from granting loans to sickness benefit recipients is the unenforceability of social benefits. Banks therefore lack essential security for consumer loans.
Another reason for the loan failure is the uncertain future.
Banks have difficulty assessing how your health and financial situation will develop in the future and whether, for example, they will still be financially able to pay the monthly installments in a year or two.
Credit options despite receiving sickness benefits
Additional collateral is the key to granting bank loans while receiving sickness benefit.
You are most likely to be successful at your house bank if you have been a customer there for many years. The chances increase if you apply for a dedicated loan.
If you can present a medical certificate that can be expected to regain your ability to work in the foreseeable future, this is a further plus point.
A certificate from your previous employer that he will hire you can also help.
Car financing is often feasible
Car financing is most likely possible while receiving sickness benefits. This applies to mileage contracts as well as car loans from manufacturer banks and house banks.
Car loans are earmarked. The vehicle is transferred as security or remains the property of the financing company from the outset, as with the kilometer contract.
Lenders or lessors can use the motor vehicle as collateral relatively easily if customers do not meet their payment obligations. Therefore, the requirements for regular income are not as high as for freely usable loans.
If the recipient of sickness benefit is able to make an appropriate down payment, the chances of debt financing increase.
Funded purchase in the event of illness
Sickness benefits are often not an obstacle to financed purchases or installment payments. Before the contracts are concluded, it is often sufficient to state the amount of monthly payments without further specification.
However, consumers with funded purchases should be cautious when it comes to mail order, for example. This is especially true when receiving sickness benefit.
Financed buyers of all kinds have an impact on creditworthiness like preliminary loans. They limit the scope for future loans.
For example, it can be even more difficult for sickness benefit recipients to obtain a car loan if other sales contracts have previously been financed with debt.
Better loan opportunities through special collateral
Do you have savings, securities, life insurance or private pension insurance?
As a recipient of sickness benefit, they then have better credit opportunities. Loan amounts are limited by the respective lending limits.
The mortgage lending limit is high for savings, as there are no fluctuations in value and the bank can immediately access the savings book.
In the case of securities, the mortgage lending value is based on the respective risk level. It lies between 40% of the stock and 80% of the stock.
The value of existing life insurance and pension insurance is based on the surrender value. Banks are ready to give a loan equal to the surrender value less a security margin of 10%, for example.
Borrowers must hand over the original insurance policies to the bank.
A special option is the policy loan from insurance companies.
Policyholders should contact the insurer. The insurance may initially be reluctant to issue a policy loan. However, the willingness increases when you explain your personal situation.
An alternative is to use a policy dealer. Some of these financial service providers not only buy existing insurance contracts, but also grant policy loans.
Policy loans are not actually loans. They can best be described as an advance on the final insurance benefit. The amount of the loan is limited by the respective surrender value.
Not every insurance is suitable for a policy loan. Classic life insurance or annuity insurance are best suited if they have a relatively short remaining term and a current value of at least 5,000 USD, better 10,000.
In the case of a policy loan, the original insurance contract remains. This is the advantage over a sale.
The repayment of the loan can be regulated in different ways. For example, a settlement can be agreed with the expiry payment or the amount paid out can be returned in installments.
Loans from private for private
Credit exchanges that provide P2P loans generally only accept regular income credit customers or the self-employed.
Fine Bank is an exception. The financial service provider expressly accepts sickness benefit recipients as credit customers.
Under the relevant search terms, you can actually find a number of Fine Bank loan projects on the Internet that have taken out sickness benefit recipients.
Over the years, Fine Bank has developed a complicated procedure for checking creditworthiness, which facilitates the procurement of loans in difficult cases.
However, sickness benefit recipients can expect a poor Fine Bank score. And that means the effective annual interest rate will be very high.
No international loan without private credit checker
Anyone who receives sick pay does not get a loan without private credit checker. Anyone who promises otherwise is not serious.
Loans without private credit checker are granted by foreign banks and can be arranged by domestic credit intermediaries. As far as can be seen, all loans without private credit checker come from Liechtenstein’s Fine Bank.
A prerequisite is a regular income from an employment relationship. Sickness benefit recipients cannot prove such an income.
Last but not least: co-signing and a guarantee
Guarantees are often presented as a way out of the dilemma that, in many cases, it is impossible to obtain a loan when receiving sickness benefit.
In fact, some banks and credit intermediaries accept “guarantees”, but most of the time it turns out to be a real signing of the loan agreement by another person.
In the case of guarantees or co-signatures, the creditworthiness of the guarantor or co-signer is important. Only then will it be decided whether, in what amount and at what loan terms a loan is granted.
In economic terms, the co-signer is the actual borrower. Guarantors or co-signers are fully liable to the bank. They can be claimed without first having to sue the beneficiary.
Guarantees and co-signing of loans are entered in private credit checker. If there are disruptions in performance, unpleasant consequences can arise for both the guarantor and the recipient of sick pay.
Many friendships and kinship relationships have already broken down in difficult cases through co-signing or loan guarantees.
Credit despite receiving sickness benefits: many hurdles – sometimes possible