August 2005

To recoup money being lost by offering low Annual Percentage Rates (APR), personal loan providers are pushing Payment Protection Insurance (PPI) policies at customers. When PPI is added to the loan the APR of the loan itself becomes absolutely meaningless and bears no resemblance to what the customer will pay. This makes a comparison using APRs impossible.

When PPI is added to a loan, the cost is sometimes added to the total amount borrowed and then interest is charged on both. This willingness of providers to push PPI can lead to policies being missold to customers who may never realise they have been sold this added product.

For mortgages, the stated APR has to include all costs associated with it. This is not the case for loans. There is no doubt the industry will argue that PPI is clearly a separate offering, however the only way to really make the cost of PPI transparent is to make the lenders adjust the stated APRs to include the cost of this product. Not only will the impact of PPI then become clear, the consumer will also be able to accurately compare one product with another.