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Avoiding being taken for a ride with Loan Payment Protection

November 10, 2008 by admin

Britain is a nation that enjoys a bit of credit.

Each day of year millions of pounds of debt is issued in one form or another, personal loans, hire purchase, lease purchase, contract hire, first year payment free and four years 0%; names immaterial, its all credit. Unfortunately, an intrinsic part of a credit sale, is the much more profitable insurance sale; and that can cost you a packet. 

Take the purchase of the shiny new car for example. Imagine, you are at the dealers, done the test drive, sorted out the spec, the colour, and the part exchange price on your old car.

An hour and a half at the dealers, you got the car that you wanted, feeling good, having triumphed over mans No 2(close second to a double glazing salesman) mortal enemy, getting the deal that you wanted.
At this point, you drop your guard, after all the deal is done; isn’t it?

The car salesman takes you through to a man called “the business manager”, who is actually the Finance and Insurance salesman; to talk to you about funding options.

He will talk about the various options, Personal Contract, HP, leasing, balloon payments etc, and the focus is on the affordability of the monthly cost. But you know approximately what the market is doing, because interest rates are constantly in the public domain and he knows this, so will offer something competitive, Say 5%. You think, great, I have done it again, guard dropped.

However, his job is to make some money out of you, so its time to play the joker!

Loan Protection Insurance

This insurance is designed to meet repayments if you are unable to, due to accident, sickness or redundancy. In this case it could avoid the car being repossessed and the ensuing bad credit rating, increase in the costs of all credit, inc mortgages that could follow.

For most of us, not being able to meet ones credit commitments is a real worry, he knows that and has a solution, a Loan Protection Policy.

The sales goes like this “for an extra 1.12 per day, that not even the cost of a sandwich, you loan can be protected against the consequences of not being able to pay due to accident, sickness or redundancy”.
Most people say, “oh alright”. He rings the bell, he got you.

The majority of Loan Protection Policies are sold in this way, to protect car loans, personal loans, second charge loans, loans for home improvements, conservatories; the list goes on. There are huge profits for the companies selling Loan Protection in this way as the cost is almost double that of a good quality stand alone Loan Protection Policy.

If you are going to take out a loan and want a Loan Protection Policy buy a good quality policy from an independent supplier.

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Filed Under: Loan insurance, Loan payment insurance, Loan protection insurance Tagged With: Loan insurance, Loan Payment Protection

Loan Insurance – Six Things to Look Out For

September 25, 2008 by admin

If you sign up for a new loan or credit agreement, you usually feel slightly nervous.  You realise it’s yet another financial commitment on top of the ones you already have.  So if the lenders recommend a loan insurance policy “for peace of mind”, it’s tempting to take up their offer.  However there are a number of things that you need to be careful of – and that the lenders won’t tell you about!

• If you are aware when you take out the policy that there is a possibility of unemployment or redundancy, or that you may be diagnosed with a medical condition that could prevent you from working, you won’t be covered.
• Never sign a loan insurance agreement without reading the small print.  You need to be absolutely clear what cover you need and what cover it provides. If you find it doesn’t fit in with your needs, don’t take it.  Remember it’s optional, even if they try to make you think it’s compulsory.
• The small print often seems to exclude most of the things you might claim for.  For instance it often excludes many quite common illnesses.  The companies rely on you not reading it.
• When you are taking out the loan itself, be very careful, and consider carefully at that point whether you actually require the loan insurance or not.  In a survey, 24 out of 41 companies included the cost of loan insurance automatically without even asking the borrower.  Once you have signed the loan agreement, it can be very difficult to cancel the insurance without cancelling the policy.
• If you feel the need of loan insurance, you may be better off taking out a standalone PPI (payment protection insurance) policy.  These can be much better value than a policy that is tied to a specific loan.  Ask your independent broker to help you find the best one.
• If you do decide to take out loan insurance, don’t pay with a single lump-sum payment.  This will make it very hard for you to get a refund if you pay off your loan early.  Pay with monthly premiums.

Always remember that the lenders are selling you insurance for their benefit, not yours.   It can be useful, but you need to keep your eyes open to make sure you get the right product for your needs.

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Filed Under: Loan protection insurance Tagged With: Loan insurance

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