Beware of the loan sharks lurking in the yuletide

Bigger and much more expensive Christmas presents are well within the reach of the most cash strapped, as lenders bombard the borrowing public with offers of easy money.

As debt levels have soared, the bleak state of the economy and a series of financial scandals have hit corporate profits and forced companies to cut thousands of jobs. This combination of high levels of consumer debt and job insecurity has meant that it is much easier for insurers to convince their borrowers that they need personal loan insurance.

However, critics of personal loan insurance are warning borrowers that these plans are not always good value for money, with sales running at 1000 policies an hour and lenders raking in a staggering £10million a day in premiums (and over £8million in commissions).

This is because, says Simon Burgess, Managing Director of Insurance Broker Goodfellows: "Lenders employ misleading sales techniques to ensure that borrowers sign up for the cover without even knowing they have bought it. Even worse, in countless cases, borrowers are not even eligible for the insurance, making their policy worthless".

Posing as a potential customer with the following profile:

1 Self employed

2 Homeowner living in the same house for five years

3 Currently on sick leave due to heart disease and seeking a £5000 loan to help with Christmas cash flow

Simon Burgess phoned 23 loan companies who advertised in a leading newspaper on 3 December 2003, making 23 calls in all.

Ninety per cent of those lenders automatically included loan insurance on in the quote and all of them who had included it, failed to check to see if it was suitable for a self-employed person.

More shocking, not a single lender asked about Mr Burgess’s medical history or told him pre-existing medical conditions are automatically excluded from loan protection insurances.

Furthermore, despite the profile of Mr Burgess, in 22 out of 23 cases the loan would not be granted unless he took out the lenders’ loan insurance policy or had it secured on his home.

The Financial Ombudsman says it is extremely concerned about loan protection insurance. Its website ( states "Most borrowers are urged to protect their loans by taking out insurance to meet the repayments if they become unable to work. But the people who sell this type of insurance are often not specialists in this field and some have little or no knowledge of the policy terms. Their ‘advice’ will therefore not be of great assistance to borrowers, who may be uncertain what they are paying for and unable to judge whether it is suitable for them".

To combat the profiteering by lenders, Goodfellows has launched insureyourloan, a loan insurance policy that is far superior in both content and price, than policies offered by the lenders, which will enable clients to obtain, perhaps for the first time, value for money when buying this product.

Insureyourloan is available as a paper brochure or online at where one can also calculate the cost of cover using the instant quote facility.