Thur, 04 Sep 2008
The cost of a personal loan has increased recently as a result of the crackdown on the selling of payment protection insurance (PPI).
Loan providers were making a considerable profit on the PPI they were selling with their loans, but regulators warned them to stop mis-selling these policies and therefore they are having to recoup their losses by increasing the rates on their loans.
PPI can provide security if the borrower is suddenly unable to keep up with repayments; but lenders were accused of using underhanded tactics to sell PPI, such as telling borrowers that they had to take it out if they wanted to the loan, or adding it onto the price of the loan without properly explaining it to the customer. Many customers have now reclaimed mis-sold payment protection insurance premiums, leaving a hole in lenders' profits.
Two of the most competitive loan providers on the Daily Mail's Best Buy table, Moneyback Bank and Alliance & Leicester, have both increased their rates by as much as one whole percentage point in the last 12 months.
The difference in monthly repayments on a loan of £5,000 over a five year period is just £3.76, but this adds up to a total extra cost of £188 on the total loan repayment.
Source:fairinvestment.co.uk