Loan Repayment – Watch Those Extras!
Following a complaint made by Citizens Advice in 2005, claiming that aspects of the payment protection insurance (PPI) market were severely harming the interests of consumers, a report has been published by the Office of Fair Trading.
Payment protection insurance is designed to safeguard borrowers’ ability to keep up loan payments and in theory it should make it easier to avoid getting into debt. If the borrower suffers an illness, an accident or loses their job, then PPI should step in and pay out for a specified period of time. It appears that borrowers’ are not being made aware of exclusions which may mean that they can’t make a claim.
In addition to these omissions, it appears that borrowers’ have no true idea of the real cost of cover and do not receive suitable information on the product.
What is making matters worse is that providers are using an assortment of very different terms for the same products.
Not all borrowers need the protection that these policies offer. Prior to taking out the loan they would not have considered the purchase of additional insurance and it is a fact that almost 90% of unsecured loan providers automatically calculate the cost of the PPI in the full figures for the loan. If you apply for a personal loan you are likely to find an amount for PPI added to the bottom of the calculations and may even assume that this is a pre-requisite, which could be taken as misleading.
The Office of Fair Trading revealed that the variance in the prices were not relative to the cost. There were cases of virtually identical policies costing from £16 to around £40. Product providers seem to be doing very well out of selling the cover, with the cost of claims showing as a very small proportion of the annual income of £5 billion which they receive from premiums.
In the PPI industry as a whole, the Office of Fair Trading was not happy with regards the provision of clear information on PPI prices, although this was not totally the case. It was commonly found that marketing literature was on display without any indication whatsoever of costs.
When taking out a loan, 25% of borrowers’ had the mistaken impression that by taking out a payment protection plan, their application for credit would be viewed more favourably. Sales agents earn a considerable income from the sale of the product and commission of 60% of the product price is common.
An amazing 7.5 million PPI policies are sold every year, despite the fact that they are unsuitable for a great many borrowers’ and many of them are incredibly expensive.
A feed-back session on the Office of Fair Trading report is being held. Further action is then expected and this is very likely to result in them offering encouragement to companies to improve the product which they offer to their clients. Plans are then likely to be put in place for a code of conduct. These moves would be on a voluntary basis.
In the event of companies not complying with whatever moves are proposed, it is possible that a full investigation and recommendations could be handed to either the Financial Services Authority or to the Competition Commission.
In the meantime, remember that this is a purely voluntary form of insurance. Cover for accident, illness or loss of job can be found in other forms. Indeed it is likely that many borrowers’ who have paid for this expensive cover are already amply insured via other products.
Check the facts carefully. It’s your money.
Michael Challiner
http://www.articlesbase.com/loans-articles/loan-repayment-watch-those-extras-60371.html
What are some student loan consolidation companies for me to try? I have student loans I need to consolidate?
My student loans are through Sallie Mae and they charge 100 dollars to get a forbearance on the loans so I need to consolidate with a different company.
rebecca
22 Feb 13 at 8:39 pm
One word of advise BE VERY CAREFUL and review the terms VERY CAREFULLY. In this day and age, be sure of the interest rate and the penalty if payments are missed. (like adding a $150.00 late fee)
References :
Experience and having worked at Credit Bureau Reporting
dude I
23 Feb 13 at 1:41 am
Do yourself a favor and don’t ask that question here, because all you’re going to attract are the scam artists that frequent this topic area.
Let me offer a few bits of advice:
First of all, paying $100 as a fee to be granted a forbearance may seem practically criminal, but the costs of consolidating your loans will be far more expensive than $100.
A consolidation loan rips up all of your old loans and replaces them with a single new loan. Consolidation loans are sold with the promise that you’ll lower your monthly payment – and that’s almost always absolutely true.
HOWEVER, what they don’t tell you – while they’re pushing the idea of a lower payment – is how they manage to offer you a lower payment. Think about this – either they’re going to lower your payment by significantly lowering your interest rate (nope), they’re going to lower your payment by forgetting about some of the money you owe (never), or they’re going to lower your payment by simply having you make a lot more smaller payments (bingo!)
Suppose you owed me $100, and we had agreed that you’d pay me $50 this week and $50 next week. You come back and explain that $50 is really more than you can afford right now – and you ask if there’s anything we can do to lower your payment. I’d say "absolutely! – how about if you only pay me $10 a week, would that work for you?"
You’d think this was pretty nice of me – until I told you the other part of the deal. You’d pay me $10 a week, but you’d make 15 payments of $10. So what’s happened? Now you’re going to pay me $150, not $100. That’s how a consolidation loan works.
The only difference is that we’re not talking an extra $50. Depending on the terms of your consolidation loan – and how much you already owe, chances are that you will pay tens of thousands of dollars more in interest if you choose to consolidate your loan. That’s a heck of a lot more than the $100 Sallie Mae wants to grant you a forbearance.
Before considering a consolidation loan, talk to Sallie Mae about their alternative payment programs. There are programs that start out with a lower repayment and increase later, when, hopefully, you have more income – ask them for more information.
Finally, you may find consolidation a very difficult thing to arrange right now. I’m sure you’ve been watching and listening to the news about this country’s banking crisis, if not – you should be. This current crisis is really impacting the student loan business – and there is little or no private educational lending going on right now. It’s not just student loans either – I would wish you a lot of luck trying to find a car loan or a mortgage right now, unless you have a substantial income and a sterling credit history.
If Sallie Mae is willing to offer you a forbearance, and you really need it right now, swallow hard and pay the $100. That’s the cheapest and most certain alternative for you right now.
Good luck, I hope that helped.
References :
NotAnyoneYouKnow
23 Feb 13 at 1:43 am