Borrowers Warned Against Expensive Insurance Policies

Online data comparison service Moneynet, has warned UK borrowers to avoid the pitfalls of expensive payment protection insurance (PPI) when taking out a personal loan.

The UK unsecured personal loan market is currently awash with low interest rate personal loans, which many consumers find hard to resist. However, the cynics among us may be tempted to say that some lenders are trying to claw back the profits lost by offering such low interest rates by pushing expensive PPI’s onto customers.

Some personal loan and credit card rates are at their lowest ever in the UK as stiff competition in the marketplace sees lenders slashing rates in order to remain competitive.

Moneyback Bank is one of a few lenders who have reduced its rate to one point above the Bank of England base rate, with their rate dropping from 5.70 down to 5.50.

However, while many lenders will see profit margins reduce as borrowers are seduced by rock-bottom rates, Moneynet has revealed through their research that millions of customers are more than compensating for lenders lost revenue by purchasing extortionate PPI policies along with their personal loans.

Moneynet chief executive Richard Brown said: “ Consumers have never had it so good when it comes to personal loans, thanks to the many excellent products currently available – but, as is often the way with too-good-to-be-true lending rates, there’s a potential catch.

“ Rates which are only a little above the base lending rate are not going to pile on the profits for lenders- but many are clearly enjoying bumper returns from astronomical PPI charges.

“ Many borrowers will want to protect their loans – in recent weeks we have seen many redundancy announcements, and it stands to reason that borrowers may be nervous about their ability to repay loans – but it makes sense to track down the cheapest on the market,” added Mr Brown.

In order to avoid being stung by a PP policy, Moneynet suggests it would be more prudent to use an independent low-cost broker to search for policies at cheaper premiums and that offer similar protection to that offered by the lender PPI policies offered by the lender being used for the loan tend not to be in the borrowers best financial interests.

Alisdair Milton
3rd May 2006

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