Loan Repayment Watch Those Extras
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Loan Repayment: Beware of Extra Costs!
Summary:
In 2005, Citizens Advice raised concerns that the payment protection insurance (PPI) market was harming consumers. In response, the Office of Fair Trading published a report highlighting key issues.
Understanding PPI:
Payment protection insurance is meant to help borrowers maintain loan payments during unforeseen circumstances like illness, accidents, or job loss. Ideally, it prevents debt accumulation. However, many borrowers are unaware of exclusions that might prevent them from claiming benefits.
Key Issues:
1. Lack of Awareness:
Borrowers often don't understand the real cost of PPI or receive clear information about it. Many lenders use different terms for similar products, adding to the confusion.
2. Unnecessary Coverage:
Not all borrowers need PPI, but many unsecured loan providers automatically include its cost in loan figures. This practice misleads borrowers into thinking it's mandatory.
3. Inconsistent Pricing:
The report showed significant price discrepancies for similar PPI policies, with costs ranging from £16 to £40. Despite high premiums, claim payouts are a small fraction of the annual £5 billion income from PPI.
4. Misleading Marketing:
Many borrowers believe that buying PPI will improve their credit application chances, influenced by sales agents earning high commissions (up to 60% of the PPI cost).
5. Prevalence and Suitability:
Annually, 7.5 million PPI policies are sold, yet many are expensive and unsuitable for the borrowers.
Moving Forward:
The Office of Fair Trading is hosting feedback sessions on the report and may encourage improved PPI offerings and a voluntary code of conduct. Non-compliance may lead to investigations by the Financial Services Authority or the Competition Commission.
Final Thoughts:
Remember, PPI is optional. Alternative coverage for accidents, illness, or job loss may already exist within other insurance products you have. Always check the details and make informed decisions?"it's your money.
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