Payment Protection Insurance (PPI) and Secured Loans
Payment Protection Insurance (PPI) provides cover in the event of all sorts of things like, accidents, involuntary employment or sickness for secured loan repayments. The Insurance organisation will make repayments against the loan for a period, which is typically either 12 or 24 months.
A secured loan, by definition, will only be provided once you have put up your home as security against the loan repayment, it is important that you seriously consider both the added expense of taking out insurance protection and whether you take it out in the first place. This article outlines how PPI works in the secured loans market and will hopefully aid in the decision making process.
PPI, Secured Loans and APR
When secured loan providers advertise an interest rate they quote what is commonly known as the APR (Annual Percentage Rate). The APR is used to make sure that the potential borrower is aware of the `real cost' of the secured loan and that the percentage rate quoted includes any concealed costs (like set up fees or commission). 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 lenders are aware of this and to make their percentage rate `visually more competitive' and more attractive to Customers, the insurance cover will almost always be optional and therefore will not be included in the quoted APR.
Nearly every secured loan provider charges differently for payment protection insurance. This may be based on which company ultimately provides the cover and other factors like age, risk and the size of the secured loan being covered.
This means that when searching for a secured loan it is not only the headline APR rate you should look at, but also the underlying insurance costs of taking out the secured loan. For example, two competing secured loan providers could quote APRs of 9.5% and 10.0%. The 'man in the street' would assume that the quoted rate of 9.5% would be cheaper, but there is every chance their PPI will be far more expensive and you may discover that the company quoting an APR of 10.0% will actually provide a cheaper loan (i.e. lower monthly repayments and less money to pay back).
Saving Money on your Insurance
Remembering secured loan providers nearly always make their insurance cover non-compulsory means there is nothing stopping you going to a specialist to provide the insurance cover. Remember that if a secured loan provider does not include insurance costs in the quoted APR then they cannot lawfully refuse you a loan simply based on your refusal to take out PPI with them.
Given the rise in the secured loan market and therefore the requirement for insurance cover there are an increasing number of companies beginning to sell standalone PPI policies. They normally quote cover as a cost per one hundred pounds of your monthly repayment e.g. quoting £5 per £100 means if your monthly repayments are £200 it will cost you £10 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 one month for the insurance payments to kick in) 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 £4.50 per £100 of cover required. It is worthwhile spending some time looking for other specialist insurance providers on the Internet.
Conclusion
The decision whether to purchase payment protection insurance (PPI) and the costs of getting cover are almost as important as decisions about the actual secured loan itself. With a little bit of time spent looking around and careful consideration it is possible to get loans which in the long run cost you less over their lifetime. If you have any doubts about secured loans and PPI seek the help of an Independent Financial Adviser (IFA) and never be afraid to ask the secured loan or insurance provider to explain their terms and conditions and policies in detail.
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