Payment Protection Insurance

It pays to be prepared which is why for many taking out Payment Protection Insurance (PPI) to cover their personal or secured loan seems like a sensible option. However before committing to an additional cost on top of your loan, make sure you consider the pros and cons of covering your loan.

Payment Protection Insurance (PPI) is offered by a lender as cover for a borrower so they can maintain repayments on their personal or secured loan and avoid getting into debt if they have an accident, are sick or become unemployed. PPI is normally purchased when you take out a loan from the lender, but may be available at a later date or as a stand alone policy.

The calculations used and rates applied for Payment Protection Insurance (PPI) varies from lender to lender. A lender will look at the amount the customer wants to borrow, if it is a joint or single application and the repayment terms to calculate the PPI.

While PPI can offer peace of mind for those worried about debt payments, there are some drawbacks you need to be aware of:

• Adding PPI can in some cases almost double the actual cost of the loan
• You may not be eligible for payments for a period of up to six months after starting the policy
• Some policies only cover redundancy so are not suitable for the self – employed
• The PPI cost is sometimes added to the total amount borrowed and then interest is charged on both

One of the major criticisms of PPI is that it is mis-sold to customers, as lenders can make a healthy profit from the cover. Consumers are given a quote for their personal or secured loan that automatically includes PPI, when this is an optional cost. There have also been criticisms that PPI policies include too many exclusions and only pay out under restrictive circumstances.

When you compare loans with uSwitch.com, we let you search for personal and secured loans both with and without Payment Protection Insurance (PPI) included in the cost. This way you can see the difference in cost and decide if PPI is the right cover for you.