(PRWEB) April 28, 2006
As lenders offer seductively low personal loan rates, online data comparison service Moneynet highlights the pitfalls of arranging loans with payment protection insurance.
Borrowers are currently enjoying some of the lowest-ever personal loan and credit card rates in the UK, as fierce competition in the sector sees lenders slashing rates.
Moneyback Bank is the latest loan provider to drop its rate, now down from 5.70 to 5.50 per cent – just one basis point above the Bank of England base rate.
But while consumers may well be seduced by such bargain basement rates, research by Moneynet reveals millions of borrowers are effectively topping up lenders’ coffers from the sale of over-inflated payment protection insurance policies.
“Consumers have never had it so good when it comes to personal loans, thanks to the many excellent products currently available - but, as is often the way with too-good-to-be-true lending rates, there’s a potential catch,” said Moneynet chief executive Richard Brown.
“Rates which are only a little above the base lending rate are not going to pile on the profits for lenders – but many are clearly enjoying bumper returns from astronomical PPI charges.
"Many borrowers will want to protect their loans - in recent weeks we have seen many redundancy announcements, and it stands to reason that borrowers may be nervous about their ability to repay loans - but it makes sense to track down the cheapest on the market," added Brown.
There is no shortage of examples as to how buying PPI with a lender offering a competitive loan rate can really push up the cost of repayments.
For example, a £5,000 loan over five years with PPI included from Norwich & Peterborough Building Society can cost over £50 per month more than a similar loan from Northern Rock with the best stand alone PPI policy. In fact, at a rate of 8.90%, a loan with N & P would cost more than the same loan amount with PPI from HSBC - even though HSBC's loan rate of 14.90% is nowhere near as competitive.
Moneynet financial comparisons suggests that it’s rarely in borrowers’ interest to accept the policy offered by their lender and they should consider using an independent low-cost broker to access PPI at far cheaper premiums which offer the same – or better – protection than their lender.
Clearly, the advantage of the lower rate is negated by the high cost of the PPI policy, warns Moneynet.
“With consumer debt at record levels there’s huge competition for loan business. Never before has it been so important to study the small print as virtually every product carries a sting in the tail – however mild," advises Richard Brown.
Best Personal Loan Rates as at 27 April 2006
Provider: Minimum - Maximum - Redemption Fee - Rate at 26/04/2006
Moneyback Bank: £1,000 - £25,000 - 1 Month Interest - 5.50%
Cahoot: £5,000 - £20,000 - 1 Month Interest - 5.80%
Northern Rock: £1,000 - £25,000 - None - 5.60%
AA: £5,000 - £25,000 - 2 Months Interest - 5.80%
Lombard: £5,000 - £25,000 - 30 Days Interest - 5.80%
Best/Worst Loans with PPI as at 27 April 2006
Best with PPI
Provider: Amount - Period - Rate - With PPI - Without PPI
Cahoot: £5,000 - 5 Years - 5.80% - £110.24 - £95.86
Nationwide: £5,000 - 5 Years - 6.70% - £113.19 - £97.84
Northern Rock: £5,000 - 5 Years - 5.60% - £114.09 - £95.42
Worst with PPI:
Norwich & Pborough*: £5,000 - 5 Years - 8.90% - £152.10 - £102.72
HSBC: £5,000 - 5 Years - 14.90% - £145.22 - £116.26
RAC: £5,000 - 5 Years - 6.50% - £135.17 - £97.40
- If a loan for example was taken with Norwich & Peterborough but payment protection via Moneynet.co.uk at a cost of £4 for £100pm cover total monthly saving would be £45.38. The consumer could have the option of using that saving to reduce the term of the loan of £5,000 to 3 years or borrow a total of £7,300 over 5 years
For further information please contact one of the numbers below.
Consumer enquiries: 020 8460 2833/ Moneynet financial information
Richard Brown, Chief Executive
020 8313 9030
David Andrews, David Andrews Media Ltd
01273 774109 / 07941 255855
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