Taking a loan? Avoid the PPI rip-off and save loads.

nemo183

Apologies to all that already know this, but since a friend of mine has just been suckered into this trap (as I once was) I thought it was worth mentioning how careful we all need to be when accepting Payment Protection Insurance (PPI) with a loan.

PPI insurance is supposed to meet loan repayments if the borrower's circumstances change. Sadly, many lenders are happy to sell you a policy that contains exclusions which mean that you will never be able to claim - a good example would be anyone who is self-employed.

In addition, many lenders will calculate the premium for the duration of the loan, on a monthly basis, and then add the full amount to the original loan. This wonderfully creative accounting has two major drawbacks:

1) You end up paying interest on your insurance
2) By adding the total to the loan, it is impossible to cancel the
insurance even if you find out you can never benefit from it.

For example, let's say you borrow £5000 over 5 years at 9%, and that your lender calculates that your insurance should be £10 per month. £10 a month is a total of £600 over five years. So, they add the £600 to your £5000, making a total loan of £5600, and like magic your £10 a month becomes £12.46 when interest is added.

What's the solution? Easy. First decide if you really need insurance. If you do, visit a third party provider. Oddly enough, you'll find they can provide the same cover for a fraction of the cost.

mrcow

Just as a side note to this, the big lenders make hundreds of millions of pound in profit solely off the back of selling these products. Hence the hard sell to new customers.

Never forget that you will always have a cooling off period of either 14 or 30 days to cancel if you feel that you want to.

If anyone feels that they have been missold an insurance product, they should first get in contact with the company who sold the product, and if need be refer the complaint to the Financial Ombudsman Service

Lovingitifitsabargain

nemo183 wrote:

Apologies to all that already know this, but since a friend of mine has just been suckered into this trap (as I once was) I thought it was worth mentioning how careful we all need to be when accepting Payment Protection Insurance (PPI) with a loan.

PPI insurance is supposed to meet loan repayments if the borrower's circumstances change. Sadly, many lenders are happy to sell you a policy that contains exclusions which mean that you will never be able to claim - a good example would be anyone who is self-employed.

In addition, many lenders will calculate the premium for the duration of the loan, on a monthly basis, and then add the full amount to the original loan. This wonderfully creative accounting has two major drawbacks:

1) You end up paying interest on your insurance
2) By adding the total to the loan, it is impossible to cancel the
insurance even if you find out you can never benefit from it.

For example, let's say you borrow £5000 over 5 years at 9%, and that your lender calculates that your insurance should be £10 per month. £10 a month is a total of £600 over five years. So, they add the £600 to your £5000, making a total loan of £5600, and like magic your £10 a month becomes £12.46 when interest is added.

What's the solution? Easy. First decide if you really need insurance. If you do, visit a third party provider. Oddly enough, you'll find they can provide the same cover for a fraction of the cost.

can you name me a couple of companies that do PPI for covering such bills as loans - cc payments if I was to fall ill or out of work for my peace of mind - thanks

regularsaver1

It is still worth considering some kind of insurance though - by an independent