Interest rates on personal loans could start to creep up as industry watchdogs begin to crack down on payment protection insurance (PPI).
The Office of Fair Trading (OFT) has recently launched an investigation into the way that banks sell PPI, after claims they are too pushy when offering PPI cover to personal loan seekers.
However, the price comparison website uSwitch comments that if the OFT do take action on PPI sales, then this could have a detrimental effect on the currently highly competitive personal loans market.
"For anyone considering taking out a personal loan - to consolidate existing expensive debts, to buy a new car or finance a home improvement - now really is a good time to utilise such low rates of interest," Nick White, head of finance at uSwitch explains.
"While these rates may be sustainable in the short term, in the long run, with an industry crack-down on the selling practices and high costs for payment protection insurance (PPI) expected, we may see rates starting to creep back up," he adds.
Yet many want to see action taken on the way PPI is sold, as it can often further burden the borrower with debt.
"Payment protection insurance is sold to borrowers with the promise of peace of mind but most of the time, PPI often just adds to their debt problems," commented Francesca Hopwood from the Citizens Advice Bureau.
Similarly Nick White from uSwitch warns that despite current low loan rates, monthly repayments on loans can "significantly" jump if a consumer also opts for the lenders' PPI cover.
He explains how a cheap loan at 5.6 per cent from Direct Line can end up costing over £1,600 more to pay back if the borrower takes on PPI.
Personal loan rates could rise as PPI crackdown begins
Personal loan rates could rise as PPI crackdown begins
Tue, 25 Apr 2006
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