Save £3,353 on loan payment protection insurance
Wednesday, 14 December 2005 12:00
Two new studies show that borrowers can save thousands of pounds on the repayment costs of a personal loan by opting for independent payment protection insurance.
But millions of Britons are unaware that they can take out loan cover from insurers aside from their lender, and others might not even be aware that they are paying for protection.
Paymentcare, a stand-alone payment protection insurance broker, discovered that high street banks are still including the cost of payment protection insurance with the cost of a loan, and are not always making it clear to consumers that they do not have to take out the lender's cover.
Every lender contacted by the firm - for a personal loan of £7,500, repayable over five years - first quoted the person applying a figure inclusive of payment protection insurance.
But using standalone cover you can save an average of £3,353 on repayments over the period of the loan, without putting yourself at risk, Paymentcare calculates.
"On each occasion the mystery shopping team was left thinking that they would be at a distinct disadvantage if they did not take out the additional insurance - yet there was no attempt made at the point of sale to establish whether the cover was appropriate," said Shane Craig, managing director, Paymentcare.
"The lenders covered in this mystery shop are guilty on two fronts: firstly, by giving the first quote with payment protection insurance as it is an inflated figure, and not one that the consumer would necessarily want. And secondly, they have all omitted to establish the eligibility of the applicant before doing a hard sell on the loan.
"Bank sales teams are encouraged to pursue hard sell tactics, as lenders make phenomenally high levels of profit from selling payment protection insurance cover: we estimate that, out of the £4 billion spent by borrowers on payment protection insurance every year, around £2.5 billion is stripped out by the banks in commission payments."
Simon Burgess, managing director of britishinsurance.com - which also carried out a study this week - pointed out that even on the cheaper payment protection cover options offered by loan providers, savings could be made.
"Our research shows that consumers protecting a £7,500 loan over five years with us could save over £3,000. This is in comparison with the most expensive provider. Even against the cheapest lender, we can save consumers in excess of £1,000," he explained.
To find a cheap personal loan go to www.myfinances.co.uk/loans.htm
Comments
Newsletter sign up