Payment Protection (A protection plan is not in the true meaning of the word an insurance, although it bears some loose similarity)
Be very careful when getting involved in this means of either increasing your buying powers or paying off old outstanding debt, or by which ever method you use the cash. One example may be to consolidate your outgoings in order to make payments easier to handle or to try to improve and reduce payments.
There are many stumbling blocks associated with taking out personal loans so tread very carefully when making such decisions, clearly it goes without saying look for the cheapest and in turn the company who is likely to charge you the least interest.
Very much more important I believe can also be payment protection.
This is often an item that gets woven into a loan agreement and often without the payee actually knowing of its inclusion. The payment protection plan is often a great source of income to money lending establishments and therefore the people you deal with are often instructed to try to sell this type of plan.
It may well be at the time of taking up your loan, the payment bears some relevancy to your present lifestyle and needs but what if things change?
You may discover some time after taking out your loan agreement that you are paying quite a large portion of your payments to that very insurance policy and seemingly little of those payments actually go to paying off the main body of your loan.
If you discover this too late in the contract then you will suffer greatly for the oversight of not being certain of just exactly what you were getting yourself into when settling for that loan agreement in the first place. Check thoroughly before you sign anything!
Later on say further into your agreement you have been paying regularly and with no default on payments, you could realise that the payment protection you took out earlier bears little relevance to your present needs any more, before you go diving in with thoughts of saving great chunks of money think very seriously of the changes that may be made if you try to reduce or remove that protection.
One major problem that could ensue as a result of changing your loan agreement by removing your payment protection policy is: The agreement could be re-written and in doing this the interest rate at time of re-write could be used.
This may significantly increase the cost of your borrowing and in turn your repayments may well rise to accommodate that fact, the term of repayment may also have to increase incurring greater charges over a longer period.
Clearly it goes without saying that if you have to pay more under a renewed agreement then you are now actually paying less off your loan and more towards the interest charged per loan term.
Banks and loan companies are businesses after all and they can be an asset to you but remember they are also committed to making a profit so be very wary with your dealings with them.
Updated 3rd October 2009: See text below.
I had taken out my loan after consulting with one of the banks financial so called experts and it was agreed that the loan that I was applying for would help to consolidate my debts and make them more affordable and manageable for me.
This loan had run from the year 2006 and one day whilst watching TV, PPI was mentioned and that prompted me to take a look at the loan agreement, when I noticed the protection and ultimately how much it was costing me per month I was not very happy at all.
Just prior to writing this article (14th March 2009) I had begun a claim against my bank with regard to PPI (Payment Protection Protection)
In the first instance I wrote a letter to the bank (2nd 03 2009) informing them of my displeasure with regard to my having to pay PPI included in my loan payments.
I had not been given the option to take out a loan without this protection nor had I been told that my premiums would include an amount of money to cover monthly payments, these payments incidentally amounted to more than a quarter of the monthly payment and these payments would, unbeknown to me last for the full term of my contracted loan which was ten years.
Most of the benefits associated with the loan were totally pointless and irrelevant to me. The main cover was Loss of employment and loss of earnings due to illness, given that I am now and was then retired these main benefits meant that the protection company had absolutely no liability whatsoever It, the insurance company would never need to pay out for a claim made by me!
Certainly if you live in the UK you will have seen all of those adverts from companies asking you to contact them if you had been sold PPI in the last few years, they were offering to take your case on and you would not have to pay them any fee because they would claim it from the losing party.
I do not have much faith in our legal services, by that I mean solicitors and other associated court representation, I have had some unfortunate experiences with them in the past (Not criminal proceedings) and I always found out it was about their earning and not about justice.
I decided to go it alone and the more I thought about it the more I believed that I had a good solid case for the bank to answer to.
I wrote my letter stating the facts clearly and precisely and posed the questions mentioned previously, mainly why did I have such a policy and why was I paying for what seemed to me to be for absolutely nothing.
I claimed full refunds for the whole of the payments made from the onset of the bank loan and I also claimed for a percentage of interest for that period too, I am glad to tell you that I received both but it took five months before the case was fully settled and I was paid up.
When I eventually got my settlement I then applied for my over charges made against my account, since I had been instructed to pay my loan in full until a final settlement was agreed, otherwise I would be deemed to be in breach of my loan contract. I felt that since I was paying out much more for a loan than I really should have been, it was only right that the bank re-reimburse me for any losses associated with overdrawn charges. I got all of those charges too, the bank upheld my case and paid out.
Just a note to help any would be claimants, never give up and never accept the first refusal of any bank or other financial service. In the UK ask questions of the FSA (Financial Services Authority) they will help you where possible, but you should have made contact with the bank or finance house/service first.
Some of these establishments will take an age to reply and many will just not bother, they may tell you they will telephone or write to you but give a distant date, they may hope you will forget them, be persistent and phone then regularly, ask for customer services and also try to get in touch with their complaints department too.
Always get the name of the person you are speaking to and record the time and date, this information may well be very helpful later if you need to take your complaint to an authority.
Just remember that you are dealing with your money and potentially you may get it back but you almost always will not be encouraged by the bank or financial service to do this, they will place obstacles in your way and unless you persist you will gain nothing.
Clearly they will not deliberately break the law but they will try to find excuses for none return of payments.