Beware of rip-off cover on a loan
THE DAILY STAR - 6TH MARCH 2005
From paying for dream holidays to flash weddings, we’ve become a nation of personal loan junkies.
In the first three months of this year it’s reckoned we’ll take out loans worth £15 billion to fund our lifestyles and dreams.
But whatever the reason for taking out a personal loan, be wary of the insurance you’ll be pressurised to take out alongside it.
The insurance is supposed to pay off the loan if you can’t – but industry experts reckon we’re being ripped off big time for this cover.
Loan companies are selling payment protection insurance at a rate of 1,000 policies an hour, raking in an astonishing £22 million worth of commission per day as a result.
Borrow £5,000 over five years and you would see an extra £40 added on the cost of your monthly repayment for the insurance alone. But shop around for cover and you could pay as little as £7.50. Simon Burgess of brokers Burgesses said: “It’s not that we mind lenders making a profit. What we object to is them selling cover which is all too often useless.”
Research by Burgesses staff found almost all lenders they called for a loan automatically included payment protection insurance cover in the quote and none bothered to check whether the applicant had pre-existing medical conditions which could invalidate the cover.
“It’s bad enough that these lenders are not making sure the customer was aware that the initial quote included the cost of loan payment protection insurance premiums,” said Simon.
“But not to make the most cursory checks on the medical history of the applicant is irresponsible and could easily lure the applicant into a false sense of security.
“Many lenders will also put the entire cost of the insurance on to the overall loan at the outset, so borrowers are being charged interest on their insurance.”
Some lenders are charging up to five times more for their payment protection insurance than others, according to another survey.
Borrow £5,000 over five years and your monthly repayment will be around the £100 mark.
But you could add an extra £39.84 on top of that if you don’t choose your loan company carefully.
Richard Brown of Moneynet.co.uk said: “Many borrowers think you have to take the payment protection insurance form the palace you are borrowing the money from – but in most cases this is not so and it pays to shop around.
“You can get competitive levels of cover at only £7.50 for each £100 of your repayment.”
That means if your loan repayments each month come to £100 you could pay £7.50, if they total £200 you’ll pay £15 for payment protection insurance and so on. Andrew Hagger of financial data firm Moneyfacts said: “Payment protection insurance is an extremely profitable area for lenders.
“Staff are heavily targeted for selling this product and often their salary and bonuses are dependent upon the percentage of loans sold with cover.
“It’s up to customers to decide whether to take out payment protection insurance or not, based on whether it suits their circumstances.
“Rather than being rushed into a decision they should find out what they are covered for and ask for a copy of the policy so they can see what is excluded.”
