Payment Protection Insurance and Secured Loans
Posted by admin on October 15th, 2008 filed in Insurance | Comment now »
Introduction
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 PPI 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.
PPI/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.
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 PPI 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 PPI!
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 PPI 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
Tags: insurance, loans, payment protection, payment protection insurance, secured loansUnderstanding Payment Protection Insurance
Posted by admin on August 19th, 2008 filed in Insurance | Comment now »
The Payment Protection Insurance is often included in the loan so that the borrower will have cover for those unexpected situations in which the borrower is not able to meet his monthly loan payments.
Many lending companies include the Payment Protection Insurance (PPI) as an integral part of all the loans that they grant. But this PPI is actually optional. That is, the borrower is not obligated to have the PPI added to his loan. And the borrower may avail of similar services that are alternatives to the PPI. But before the Payment Protection Insurance is thrown out of the window, an individual should have a clear idea about what this insurance is all about.
The Nature of Payment Protection Insurance
The Payment Protection Insurance is a cover for the borrower so that he can maintain his monthly loan payments even when he is unable to do so. This happens when the borrower gets sick, meets an accident, gets fired, or embroiled in a situation that demands spending a large amount of money.
There are many ways of determining the PPI as there are many lending companies. But generally, the PPI is mainly influenced by three factors. These are the amount of money that the loan applicant intends to borrow, the type of loan application which can be single or joint, and the terms for repaying the loan.
Disadvantages of the Payment Protection Insurance
Despite the noble intentions of the PPI, its actual use has led to several disadvantages. The first disadvantage cited by many borrowers is that the PPI can nearly double the cost of the loan and, when the Payment Protection Insurance is automatically added to the loan, it is included in the computation of the monthly interest.
The second disadvantage is that not all borrowers are entitled to this Payment Protection Insurance. Since many PPI polices cover redundancy only, the borrowers who are self-employed cannot use it. Thirdly, even with PPI, the borrower may still not have its cover if his loan has not reached six months. In other words, the PPI is expensive and restrictive. and, this is why, alternatives to the Payment Protection Insurance are sought.
Alternatives to Payment Protection Insurance
If the borrower really wanted to have protection for his loan payments, but not willing to shoulder the expensive PPI, he may approach the British Insurance Brokers Association or BIBA. This organization has a complete and updated list of brokers and insurers that offer terms that are similar to PPI, but the fees are lower and the conditions are less restrictive.
Two other alternatives to PPI are the “income protection policy” and the “short term income protection”. The former policy pays the borrower a certain percentage of his income in the event that the borrower becomes sick or injured. The latter offers the benefit of paying out for one year in redundancy cases or when the borrower also becomes sick or injured.
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About The Author
John Mussi is the founder of UK Bad Credit Loans4u who help homeowners find the best available loans via the http://www.uk-bad-credit-loans4u.com website.
Tag: payment protection insurance