Insurance and Secured Loans
Foreword
Payment Protection Insurance (PPI) provides cover in the event of all sorts of things like, accidents, redundancy or illness for secured loan repayments. The Insurance business providing cover will normally make repayments against the loan for a period of either twelve or twenty-four months.
A loan secured on property will only be provided once you have put up your home as security against the repayments, it is important that you seriously consider both the additional cost of taking out insurance cover and, indeed, whether actually take it out in the first place. This document highlights how PPI operates in the secured loans market and will hopefully give you a little help in the decision making process.
PPI for Secured Loans and information about APR
When secured loan providers market an interest rate they quote what is usually referred to as the APR (Annual Percentage Rate). The APR is used to make sure that the potential customer is aware of the actual cost of the secured loan and that the percentage rate quoted includes any hidden costs (e.g the costs of setting up the 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 secured loan providers are aware of this and to make their percentage rate look lower than it really is 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.
Nearly every secured loan supplier charges differently over the term of the loan for 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).
Spend a Little Time and Save Money
Taking into consideration that secured loan providers nearly always make their insurance cover non-compulsory means there is nothing preventing you going to someone who specialises just 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.
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 £10 per £100 means if your monthly repayments are £200 it will cost you £20 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 investigate the excess fees (for example,. it may take a month or so after your illness 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.
Final Recommendations
The decision whether to purchase payment protection insurance (PPI) and the costs of getting cover are nearly as important as decisions about the secured loan itself. With some time spent looking around and careful consideration it is possible to get loans that in the long run cost you less over their lifetime. If you have any concerns about secured loans and PPI 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. Also remember that if you do ever sign up for a loan or insurance the companies have to give you a 'cooling off' period, during which you can decide to cancel the loan or insurance cover.
The author is of this article if Adrian Hudson who has many years of experience in financial consultancy. For further discuss on items mentioned in this article, please visit http://www.we-introduce-you.co.uk. For further information Adrian posts daily on a blog about his humdrum life, the secured loans market and finance in general at http://www.we-introduce-you.co.uk/theintroducer
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