Moneynet warns against expensive PPI cover
As lenders offer seductively low personal loan rates, online data comparison service Moneynet.co.uk highlighted the pitfalls of arranging loans with payment protection insurance
Borrowers are currently enjoying some of the lowest-ever personal loan and credit card rates in the UK, as fierce competition in the sector sees lenders slashing rates.
But while consumers may well be seduced by such bargain basement rates, research by Moneynet.co.uk reveals millions of borrowers are effectively topping up lenders’ coffers from the sale of over-inflated payment protection insurance policies.
“Consumers have never had it so good when it comes to personal loans, thanks to the many excellent products currently available – but, as is often the way with too-good-to-be-true lending rates, there’s a potential catch,” said Moneynet.co.uk chief executive Richard Brown.
“Rates which are only a little above the base lending rate are not going to pile on the profits for lenders – but many are clearly enjoying bumper returns from astronomical PPI charges.
“Many borrowers will want to protect their loans – in recent weeks we have seen many redundancy announcements, and it stands to reason that borrowers may be nervous about their ability to repay loans – but it makes sense to track down the cheapest on the market,” added Brown.
There is no shortage of examples as to how buying PPI with a lender offering a competitive loan rate can really push up the cost of repayments.
For example, a £5,000 loan over five years with PPI included from Norwich & Peterborough Building Society can cost over £50 per month more than a similar loan from Northern Rock with the best stand alone PPI policy. In fact, at a rate of 8.90%, a loan with N & P would cost more than the same loan amount with PPI from HSBC – even though HSBC’s loan rate of 14.90% is nowhere near as competitive.
Moneynet.co.uk suggests that it’s rarely in borrowers’ interest to accept the policy offered by their lender and they should consider using an independent low-cost broker to access PPI at far cheaper premiums which offer the same – or better – protection than their lender.
“With consumer debt at record levels there’s huge competition for loan business. Never before has it been so important to study the small print as virtually every product carries a sting in the tail – however mild,” advised Richard Brown.