Payment Proctection Insurance and Secured Loans
by: Adrian Hudson
Payment Protection Insurance (PPI) provides cover in the occurrence of things like, mishaps, redundancy or long-term sickness for secured loan repayments. The Insurance Company providing the cover will usually make repayments against the loan for a period of either 12 or 24 months. A loan secured on property will only be granted when you have put up your home as a safe guard against you keeping up with the repayments, it is important that you take time to consider both the additional cost of taking out Payment Protection Insurance and, indeed, whether you need it in the first place. This short article gives an insight into how PPI operates in the secured loans market and will hopefully give you a some assistance in the very important decision making process.
Payment Protection Insurance/Secured Loans and APR
When secured loan providers advertise an interest rate they quote what is referred to as the APR (Annual Percentage Rate). The APR is used to make sure that the potential borrower is made aware of the bottom line monthly cost of the secured loan and that the percentage rate quoted includes any hidden costs (for example commission costs of initially setting up initial secured loan). In the case of PPI the APR only has to include insurance costs if taking out a policy for the loan being advertised is non-compulsory.
The people who sell secured loans are aware of this and to make their percentage rate look lower than it it may actually be and more attractive to Customers, the insurance cover will almost always be optional and therefore will not be included in the quoted APR.
It is probably worthwhile looking at the OFT website which has some excellent articles targeted at consumers which talk about APR and it is worth noting the OFT and other associations like the Citizens Advise Bureau have offered quite a number of recommendations about how advertising could be improved.
Payment Protection Insurance Charges
Nearly every secured loan supplier charges differently over the term of the loan for his or her particular payment protection insurance. This may be based on which company ultimately underwrites the cover and other factors like how old you are, risk and the total value of the secured loan being covered.
This means that when searching for a secured loan it is not only the 'banner' APR rate you should look at, but also the bottom line insurance costs of taking out the secured loan. For example, two competing secured loan providers could quote APRs of 8.0% and 8.5%. The average punter would assume that the quoted rate of 8.0% is cheaper, but there is a high chance their Payment Protection Insurance will be far more expensive and you may discover that the company quoting an APR of 8.5% will actually provide a cheaper loan (i.e. lower monthly repayments for the term of the loan and less cash to pay back).
Cut the Cost of Payment Protection Insurance!
Remembering that secured loan providers nearly always make their insurance cover non-compulsory means there is nothing preventing you going to someone who only deals in insurance cover. Remember that if a secured loan provider does not include insurance costs in the quoted APR then they cannot legally refuse you a loan simply based on you snubbing their Payment Protection Insurance and also remember the 'specialist' companies are likely to be far cheaper than their general secured loan provider counterparts.
Given that the secured loan market is increasing all the time and therefore the market demand for insurance cover there are an increasing number of businesses starting to sell standalone PPI policies. They normally quote cover as a cost per one £100 pounds of your monthly repayment (For example,. quoting £12 per £100 means if your monthly repayments are £200 it will cost you £24 for the PPI. It is worthwhile bearing in mind that most secured loan companies provide PPI at a cost of £10 to £30 per £100 of cover required.
Although you must always look in detail at the excess fees (for example,. it may take 30 days after your redundancy or whatever for the payments to start) and whether a standalone insurance provider varies their fees based on factors like age it is worthwhile looking at companies like Paymentcare and Payprotect who advertise rates as low as £3.50 per £100 of cover required. It is worthwhile spending some time browsing the Internet looking for other specialist insurance providers on the Internet.
Payment Protection Insurance Conclusions
The decision whether to purchase Payment Protection Insurance and the costs of cover are nearly as important as decisions about the secured loan itself. With some time spent dedicated to looking around and careful consideration it is possible to get loans that in the long run secured loans cost you less over their lifetime. If you have any concerns about PPI and seek the help of an Independent Financial Adviser and don't be afraid to ask the secured loan or insurance business to explain their terms, conditions and policies in absolute detail.
About The AuthorAdrian Hudson has a background in I.T. Management. In 1997, after recognising a gap in the market he formed the I.T Consultancy specialising in Finance called Sprint Soft Ltd. Earlier this year he founded the secured loans specialist http://www.we-introduce-you.co.uk. Adrian blogs about his day-to-day life, personal finance and the secured loans industry at http://www.we-introduce-you.co.uk/theintroducer.
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