Payment protection on a loan

socmwils23

Hi, A year ago my other half took out a loan for 5k. Having found this site i have gone on an audit of both our finances and discovered she is paying a fair bit on top of the loan for payment protection which is something she just doesnt need IMO (certainly not for the amount she is paying).

When i asked her why she had it she said that the person setting up the loan over the phone told her she was unlikely to get it unless she took out the protection. This strikes me as odd but what id like to know is it as simple as phoning up Egg (the company the loan is with) and asking to cancel it? The reason i ask is that when we log into egg it gives a total figure for the repayment with all the interest and payment protection added on. Do they just subtract the payment protection?

I am going to phone them in the morning to see if i can stop it but some knowledge on where i stand would be great.

Thanks in advance.

YorkshireBoy

socmwils23 wrote:

I am going to phone them in the morning to see if i can stop it but some knowledge on where i stand would be great.

A quick check of the Egg loan T&C's at...

http://new.egg.com/visitor/0,,3_11112--View_550,00.html

...seems to indicate that unless you cancel within 31 days you are stuck with the PPI for the duration of the loan. The only way to remove it appears to be to settle the loan! - see section 5.

It gets worse...

Section 6 states that they will refund based on "risk changes" rather than on a pro-rata basis. They give some examples of premium refunds, based on settling the loan...

1/4 of the way through.......56%
1/3 of the way through.......44%
1/2 way through................25%
2/3 of the way through.......11%
3/4 of the way through.......6%

There are some contact details at the bottom of the T&C's.

Good luck.

Rafter

You will have to cancel this loan and take out another one (without PPI) with either Egg or another provider.

The 'you won't get this loan without insurance' story is a common one but simply not true. The insurance is there for your protection, not the banks and is usually sold on commission by the bank from a third party insurance company.

It looks like Egg are using the 'rule of 78' for calculating the insurance premium refunded if you cancel early.

If your loan is 5 years or 60 months, they add the numbers from 60 to 1 together to give a total of 1860. In the first month of the loan you pay 60/1860 of the total cost of your insurance premium and so on.

So 12 months in the ratio is 654/1860 or 35% of premium applied (65% to be refunded)

So if you paid a £800 premium, only £519 will be refunded.

Even so, one year in, as long as your other half can get a loan at the same or better apr elsewhere, it is worth cancelling and applying for a PPI free loan.

Is your other half is worried about what would happen if she was taken ill or made redundant, I suggest 2 options:

1. Buy a policy from an insurance broker who will charge a lot less than Egg.

2. Self insure by taking out a loan for more than you need and putting the extra in a high interest savings account. Then if you are unable to pay, use the extra to meet your payments for a few months. Most PPI policies only pay out for 12 months anyway, and then only repay in full in the event of life cover.

R.