Payment protection insurance is an insurance that is offered on credit cards or loans that will cover your repayments should you fail to pay them due to sickness, an accident or unemployment.  The payment protection insurance will cover your payment up to a year if you should ever end up unemployed, sick, or injured.  As good as it sounds, payment protection insurance usually costs a lot of money.  Typically the payment protection is usually charged as a percentage of your balance, which can be very expensive if you have a large balance that is owed.

Payment protection insurance can benefit some people, however there is often a very strict criteria that needs to be met in order for you to make a claim.  However if you are prone to illness or if you engage in high-risk activities such as sports, then you may want to consider payment protection, as it will cover you if you are ill or injured.

If you consider getting payment protection insurance then you should look at other alternatives that are available.  Often you will find a stand-alone payment protection policy from an independent company, and are often a fixed price, which can be cheaper than what your creditor is offering.  If you already have an insurance policy, you may want to see if it also covers payments on your debts; if you are already paying a policy that covers payments then it will be a waste of money to take out additional payment protection.

The amount that you borrow, whether it is £5,000 or £25,000, is subject to an interest charge, which is known as the Annual Percentage Rate (APR).  Typically you determine the best product by comparing the APR, however with a personal loan, you will need to take other factors into consideration.  You will want to look at the overall monthly repayments and the overall cost of the loan to determine what the best offer is.

Whilst searching for a personal loan, there are other things that you will want to take into consideration, such as a redemption penalty.  Some lenders will apply an early settlement charge if the loan is repaid before the agreed end date, and if you feel that you will repay the full amount before the agreed date, you will want to look for a loan with no redemption penalty.  Other factors to consider are the insurance that the lender may require you to take out on the loan.  Because it is an unsecured loan, and the lender has no collateral for the loan, they often require you to have payment protection insurance.  Payment protection insurance will protect both you and the lender should you fail to meet your repayments due to sickness, accident or unemployment.   However, there is no need to take out the policy offered by your lender. Usually this is overly expensive. Independent insurers offer the same terms at far cheaper rates.

However, consumers are misled concerning areas that the Financial Services Authority is investigating. Partly because they are combining the Office of Fair Trading’s actions and the FSA’s as one collective body, which is misleading.

The FSA is investigating whether PPI premiums are too high.  Currently, PPI premiums can increase the cost of a loan by more than 50 per cent and offer little more than 20 per cent of the value of the loan.  These issues are referred to the Competition Commission for examination.

The legitimate questions are about how PPI is sold and the real cost of banking and administrating a PPI policy.  This creates a  problem for the FSA and the Competition Commission.

The organisation needs to tread lightly.  History has shown that  a de facto cap on the bank’s earnings from PPI products will force them to recoup the lost income elsewhere.

Unfortunately, the poorest, uneducated, and relatively disadvantaged shoulder the burden – those who cannot afford a personal loan or a PPI to start with.

Consumer watchdog organisations are worried that the banks will take the same approach they did when the OFA capped overdraft fees last year.  This will leave thousands of consumers unable to obtain debt management loans or afford a first home.

Fear that the banks will tighten their lending criteria until only the middle and upper income tax groups can obtain affordable loans is the main concern behind the debt charity’s mandate when lobbying government.

A recent USwitch study showed that consumers are overpaying up to £3,973 too much  when buying a PPI with a loan. There is a remarkable difference between the cost PPIs from independent providers, bank, or building societies.

USwitch’s director of financial services Nick White claims that banks charge five times more than independent providers, citing examples that show how consumers can save than £3,000 simply by switching their PPI provider.

Nick White commented: ‘It’s not surprising to see that the Competition Commission is now involved in this investigation as the high street banks and building societies currently account for 80 per cent of all PPI policies sold. This is mainly because consumers are not shopping around and looking at the standalone policies which represent much better value for money.’

USwitch is one of the firms that called for the Competition Commission to take action.  They want lenders to adjust percentage rates to make it easier for consumers to see the difference in their loan cost before, and after a PPI is included.
Consumers should ask for a loan quote, before and after, a PPI is included.  They should also become wary if the loan officer uses high pressure, or unfair sales tactics to sell the PPI.  Some sites suggest that most consumers are never give a clear cut total of their PPI, resulting in many loan customers believing that their PPI is much lower than normal.

You should always have copies and emergency information for all your credit cards on file.  By making copies of your credit cards, and writing down the emergency contact numbers for each card, it will make it easier to contact your credit card company when your card is stolen.  The moment you realise your card has been stolen or misused, you need to call your card issuer immediately to cancel your card and by having the contact numbers on file you will be able to cancel the card quickly.

The moment you realise that your card has been stolen you should immediately phone the police as well as your credit card company.  As time consuming and inconvenient as calling the policy may seem, it is necessary if you would like your card issuers to refund any unauthorised uses of the card.

You should always familiarise yourself with the credit card issuer’s procedures if ever your card is stolen while you are travelling abroad.  You should know if your card issuer will arrange emergency cash advances, or if the company will replace your card immediately.  Whenever you sign up with a credit card company you will want to consider what protection plan you wish to have.

The Financial Ombudsman saw a 60 per cent increase in complaints about loan insurance last year. When a person suffers from illness, or a relationship separation, they accumulate thousands of pounds of illegal default and bank charges.

Other consumers are lured into purchasing bad credit loans and IVAs, at exorbitant interest rates, resulting in a growing debt loan instead of a decreased one.  IVAs add hundreds of pounds to the debt, especially if the debtor misses a payment.

Lenders are still purchasing unsecured loan products under the mistaken belief that they are protecting their homes. At one time, a lending institute could not put a lien on a home to recover a defaulted unsecured loan. They add ‘legal costs of £2000–£3000’, which is still owed if the lien does not cover the entire ‘new’ debt.

The Scottish Executive’s wants to make it harder to acquire a PTD. It suggests that the minimum threshold should be at least 30 pence in the pound. When the Bankruptcy and Dilgence (Scotland) Act, 2006, came into force the period of bankruptcy for most individuals will decrease from three years to one.

This happened in England and Wales on April 1, 2004. The result? Personal bankruptcies doubled between 2004 and 2006. Scotland expects to see the same increase in the next two years.

Repayment periods are another important aspect of loan choice, with the longest period costing the most money. Instead, it is sensible to opt for as short a repayment period as you can manage. It is also important to choose an unsecured loan where possible as a secured loan could lose you your home if repayments are not made properly.

Where possible, consumers should repay their loans early to save on the interest. While they will be charged up to two months’ interest for early settlement, this is far less than they would have been charged under the old system.

Payment protection insurance has been investigated by both the Office of Fair Trading and the Financial Services Authority, with more investigation on the way. So it’s no surprise that borrowers have been counselled to avoid this form of insurance. According to the article: ‘ rarely offer real value for money because people rarely claim on them and when they do, they often find they don’t qualify anyway because they’re not usually ill or unemployed for long enough.’