Loan Protection, Yeah Right!

4Chickens

My hubby is a sole trader and took out a bank loan last year to buy a van. For some stupid reason he took out the loan protection insurance costing £880. At the time I did not realise this. When I phoned his business bank manager to query it she told me the following:

They had added the loan protection insurance to the value of the loan. So not only are we paying interest on the loan, we are also paying interest on the insurance.

Wait it gets better.

In order to cancel the loan protection insurance we effectively have to apply for a whole new loan which will cost us £200 to set up.

Wait it gets even better.

The term of the loan is 5 years and we have already had the loan for a year. Therefore according to my calculations the refund of the loan isurance would be £880/5 x 4 = £704 (less the cost of setting up new loan £200)= £504, worth doing wouldn't you think? No! Think again!

Apparently the bank deems itself at greater risk in the early years of the loan and reduces your refund accordingly. The upshot of this was all we would get back is £200.

And here's another interesting point. The detail of the loan protection his that if hubby is suddenly unemployed through sickness they will pay his loan repayments, but get this, for a maximum of 2 years. The loan repayments remain the same month on month no matter whether you are in year 1 or year three.

Im I being paranoid or am i being ripped off?

molar

We are both being ripped off. I'm in exactly the same situation.

The reason why your only getting £200 back could be because of a high settlement figure for the old loan. I've read on here that if you repay a loan at the beginning of it your settlement figure can be a lot higher than the original loan despite the repayments you've made. :mad:

lou_martin

It's awful isn't it, you generally get bullied into having it in the first place and then it's nigh on impossible to get out of it later on. I think it's disgusting.