Extra Cover can cost US £££s by MICHELLE CARTER
With Christmas just around the corner, many of us are thinking about sorting out our finances. According to Intelligent Finance, up to three out of every five loans taken out at this time of year are to consolidate debt. But if you opt for payment protection insurance (PPI),you could be paying up to £3,000 extra on a £10,000 loan. PPI is cover that pays off a loan if you lose your job or find yourself unable to work because of illness.
But take out insurance from your bank or building society and you could be paying up to five times the amount charged by a firm like Paymentcare.co.uk, the UK's latest standalone PPI broker. Financial comparison site uSwitch.com says a £10,000 loan taken over five years from NatWest would cost £11,934.60 but add in PPI, and the total cost soars to £14,998.20, a £3,063.60 increase. Choose the same level of cover from Paymentcare and you'll add only an extra £656.40 to the cost of the loan-£2,407.20 less than the insurance quoted by the bank.
The same deal from HSBC, Barclays, MINT and Marks & Spencer will cost between £1,820 and £2,190 MORE than the Paymentcare cover.
Nick White, of uSwitch.com, said: "The willingness of providers to promote PPI can lead to policies being mis-sold to consumers. "Many are under the mistaken belief they are getting the best rate or that by taking out this product they are more likely to get a loan.
"Alarmingly, there are some consumers who don't even know they've been sold PPL"
And PPI can turn a loan with a low APR into an uncompetitive deal. You should always look beyond the APR, warns Moneynet, because this only reflects the cost of the credit without taking into account the cost of anything added on, such as PPI and early repayment penalties.
Its’ those extras, says Moneynet, that earn loan firms their commission. Richard Brown, of Moneynet, said: "Borrowers are led to believe that the cheapest loan is the one with the lowest APR, but its’ far from the truth."
Moneynet says a £7,000 RAC loan over five years has an interest rate of 6.5% and monthly repayments of £137.93. Compared to Nationwide's 6.7% deal at £136.97, there's not much to choose. But add on PPI and the RAC monthly repayments soar to £189.24,w hite Nationwide's are £158.46. Over five years, the RAC loan would cost an extra £1,846, says Moneynet "Because the APR only_reflects the cost of the credit the lenders can advertise what looks like a competitive rate to attract customers," said Richard Brown.
"Then once the applicant is convinced they have found a great deal the commission hungry provider will make every attempt to sell them PPI, thus increasing their margin.
"No one likes reading the small print but not bothering can mean a loan ends up costing a huge amount more."