WITH little in the Pre-Budget Report to cheer the nation’s troubled finances, borrowers who were hoping to find some respite from the pressure of mounting debts will have to continue to find a way of shouldering their burden, says independent payment protection insurance (PPI) broker Paymentcare.co.uk.
But those opting for debt consolidation loans could end up compounding their financial difficulties rather than solving them if they allow themselves to be put off the idea of PPI by the recent reports of the Financial Services Authority’s PPI mis-selling investigation.
“Following last month’s announcement by the Financial Services Authority (FSA) that some firms are still falling short of the standards required for the way PPI is sold, it’s not surprising that this very useful form of protection has been getting yet more bad press,” says Paymentcare.co.uk MD Shane Craig.
“But there is a real alternative to the kind of policies that have attracted the watchdog’s criticism. Stand-alone PPI is a genuine, transparent and affordable alternative and it’s so important that consumers are fully aware that they have a choice.”
With personal debt in the UK standing at £1,363bn* and growing numbers of people seeking expert help on how to cope**, the option of consolidating all their borrowings into one bigger loan at an affordable rate has soared in popularity.
But if borrowers decide against protecting their loan with PPI because they think they are going to be ripped off, their newly acquired financial status could be short-lived should they become unable to work and lose their income.
Since PPI came under the scrutiny of industry watchdogs the Office of Fair Trading, the Financial Services Authority and the Competition Commission, borrowers have become understandably wary about signing up for something that has attracted such adverse publicity.
But, as the FSA has just underlined, much of the criticism has been aimed at single premium policies sold alongside unsecured loans without full explanation of what’s involved – or what the alternatives are.
“Reform to the way PPI is sold is essential to ensure consumers are treated fairly and not led unwittingly into a financial commitment they don’t need or can’t afford,” says Craig. “But stand-alone PPI is – and always has been – a genuinely affordable and transparent way of purchasing protection for loans, credit cards and mortgages.”
It’s not difficult to see why consumers are frightened off PPI – the monthly premium for a policy to protect a £15,000 loan bought from a typical High Street lender is currently around £80***.
But a monthly paid Paymentcare.co.uk policy, providing the same level of cover, costs around £17****, making a saving of £63 a month – or £3,780 over the term of the loan.
“Sickness can’t be predicted and job loss can affect anyone who works so to take on a loan of any size without knowing you have the means to pay it back is a risky strategy,” said Craig.
“Whilst PPI is being overhauled and those lenders whose sales techniques fall short of the required standards are being brought into line, it’s only right that borrowers who are taking steps to escape the undertow of mounting debt can do so without paying unnecessary large sums for PPI.”
* As at end of August 2007 – Credit Action
** Debt-related enquiries to Citizens Advice bureaux in England & Wales reach record levels – September 2007
*** LASU cover from Egg to protect a loan of £15,000 over five years – 10 October 2007
**** LASU cover from Paymentcare.co.uk to provide a monthly benefit of £315 – 10 October 2007
LASU = Life, Accident, Sickness & Unemployment