PPI More Than Doubles the Cost of a Loan

Mon, 12 Nov 2007

The Competition Commission has released a document alerting people to the hidden costs of loan and credit card insurance. The commission stated that loan and credit card insurance may cost customers more than the interest payments on their debt. The findings were revealed in a consultation document as part of an investigation into the Payment Protection Insurance (PPI) market.

Payment Protection Insurance covers peoples’ repayments on personal loans, mortgages, overdrafts, store cards and credit cards if they are unable to repay them due to valid circumstances, such as illness or if they have been made redundant. However, PPI doesn’t cover those who are self-employed or already have a medical condition when they take out the loan.

The commission stated that although the average interest rate on a loan of £7,500 is 7.8 per cent, if the costs of PPI were included, this rate would rocket to 18.8 per cent, clearly showing the hidden costs involved in taking out a loan.

Complaints about PPI mis-selling have doubled since year, showing the severe unpopularity of these hidden costs, as well as borrowers’ increasing awareness of them.
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