According to Moneyfacts, in the current financial environment lenders need to offer low interest rates on personal loans to remain competitive and maintain market share. This seems like good news for consumers but lenders are finding other ways to maintain profit margins by increasing revenue in other areas such as payment protection insurance (PPI).
PPI is an extremely profitable area for lenders, so much so, that their staff are heavily targeted for selling this product and often their salary increases and bonuses are dependent upon the percentage of loans sold with this cover.
Andrew Hagger of Moneyfacts said: “Moneyfacts recently became aware of the emphasis that lenders were placing on the interest rate charged (APR) to get themselves at the top of best buy tables, but as the APR alone doesn’t tell the whole picture for loans with PPI, we now base our tables on the monthly cost of the loan which is what the consumer needs to know.”
Andrew Hagger explains: “For some customers the situation has become even more complex over the last few months, with lenders such as Direct Line, Sainsbury’s Bank and Lombard Direct introducing three levels of PPI cover, each with a different cost to the consumer.
“It is up to customers to assess whether PPI is appropriate for their particular circumstances, and rather than being rushed into a decision by a lender’s ‘hard sell’ approach, I would recommend that they find out exactly what they are covered for and to ask for a written copy of the policy before entering into an agreement, so they can see for themselves what is excluded.”
