- Thousands of pounds to be saved by avoiding lenders' payment protection insurance
- Drivers urged to keep car finance and PPI separate to drive down costs
MOTORISTS can avoid the financial cul-de-sac of lenders’ own payment protection insurance (PPI) on new car loans by taking a low-cost stand-alone policy from an independent provider, says PPI broker Paymentcare.co.uk.
With the latest batch of new cars due to roll off the forecourts on September 1, many motorists will be signing up for a low-cost loan to make their purchase, but whilst they may have got themselves an excellent deal as far as rates go, they won't be quids in if they don't shop around for PPI.
"Buying a new car is an affordable luxury for many thanks to current low APRs," says Paymentcare.co.uk managing director Shane Craig, "but the true cost of a car loan with PPI bolted on is considerably more than consumers may have intended to spend.
A recent survey of the company's customers has shown that they saved an average of £2,739.77* by taking a stand-alone policy with Paymentcare.co.uk rather than their lender's single premium PPI policy.
"Being able to keep up your loan repayments should you become unable to work is clearly an essential consideration when borrowing a large sum of money, but it's unlikely to be your primary concern when you're test driving your dream car,"he says.
"When sold along with the car and the finance, it's so easy for consumers to sign up for PPI at the same time without realising how much it's going to cost or whether the policy is appropriate to their needs."
Single premium loan PPI has attracted considerable criticism since the investigation into PPI by the Office of Fair Trading began two years ago.
"Following the super complaint about the PPI market by Citizens Advice to the Office of Fair Trading in September 2005, it has become abundantly clear that single premium loan PPI policies are not in the customer's best interest," says Craig.
"The cost of these policies is added to the loan and the whole amount then gathers interest, making the PPI exceedingly more expensive than necessary. A monthly paid policy from an independent provider offers far better value for money and can be cancelled at any time ensuring that customers only pay for the cover they actually need."
Motorists can easily check online to see how much it will cost to protect their new car loan with Paymentcare.co.uk before setting off for the showroom.
For example, a loan from a typical high street lender** of £15,000 over five years at a rate of 6.9% would cost £295 per month. Add on the lender's own PPI for life, accident, sickness and unemployment cover and the figure shoots up to £378 an extra eye-watering £84 per month or £5,040 in total over the term of the loan.
The equivalent level of cover with Paymentcare.co.ukwould cost just £16.50 per month or £990 in total, making a saving of £4,050 - enough to buy a second car!
It’s not hard to see who’s driving away the best bargain when it comes to PPI.
* Average saving of Paymentcare.co.uk customers who stated their savings in response to an email survey during the course of 2006.
** Unqualified quotes obtained from Northern Rock, Alliance & Leicester and Halifax - July 2007