2025 Single Interest Insurance Explained: Costs, Benefits, and How It Works

What Is Single Interest Insurance?

Single interest insurance, also called vendor single interest (VSI) insurance, is a specialized policy designed to protect only one party involved in a loan agreement — typically the lender. This insurance covers the outstanding loan balance secured by collateral such as a vehicle, home, or other valuable property.

Unlike traditional insurance that protects borrowers, VSI insurance safeguards the lender’s financial interest. While borrowers might be responsible for paying VSI premiums, they do not receive coverage for damages or loss to the collateral itself.

Key Highlights

• Single interest insurance protects lenders, not borrowers, in home, auto, and consumer loans.
• It covers loss or damage to the collateral securing the loan, including cars, boats, and homes.
• In some U.S. states, lenders can pass VSI insurance costs to borrowers as a loan condition.
• Lenders may choose blanket VSI policies covering their entire loan portfolio to reduce administrative burden.
• Coverage options may include protections against theft, repossession expenses, skip accounts, and title errors.

How Single Interest Insurance Works

This insurance primarily covers the lender’s financial exposure if the collateral is damaged, lost, or repossessed. It is often required for borrowers with poor or limited credit history to mitigate lender risk. When a borrower defaults, VSI insurance helps offset losses from the outstanding loan balance and repossession costs.

Benefits of Single Interest Insurance

Single interest insurance policies commonly include gap coverage, reimbursing lenders for the difference between the collateral’s current value and the loan amount still owed. This is critical when asset depreciation leaves the loan balance higher than the collateral’s worth.

Blanket coverage options streamline risk management for lenders by covering all consumer loans under one policy, reducing paperwork and administrative costs. Additional benefits include:

• Skip account protection - reimburses costs to locate defaulting borrowers
• Theft protection - covers stolen or damaged collateral
• Repossession coverage - offsets expenses during asset recovery
• Lien coverage - protects against title errors or omissions

Important Considerations

Lenders may require VSI insurance for borrowers who don’t have strong credit scores but still qualify for loans, ensuring protection against potential defaults.

Single Interest Insurance When Buying Vehicles

Most states mandate proof of auto insurance for legal vehicle operation, and lenders usually require insurance before approving auto loans. If a buyer cannot provide standard insurance proof, lenders often require single interest insurance to protect their financial interest.

Additionally, borrowers with weak or no credit history might be required to carry VSI insurance as a condition of financing, reducing the lender’s risk of loss.

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