Fsa Forces Rules Change on Personal Loans Payment Protection

By: Adam Singleton

New rules imposed by the Financial Services Authority (FSA) regarding the way that personal loans are sold online are good news for consumers. Prior to the FSA intervention payment protection, cover was automatically included with most personal loans bought on the internet. Now that the automatic inclusion has been removed, borrowers could find that their personal loans are cheaper.

The FSA has declared the practice of automatically adding payment protection insurance cover premiums when granting loans as 'unfair' and stated that it must stop. Shane Craig, the managing director of paymentcare.co.uk, the independent payment protection provider, enthused: "This is excellent news for consumers and another step in the right direction towards ensuring they receive the fair treatment they expect and deserve."

According to the Association of British Insurers, payment protection insurance enables borrowers who get into repayment difficulties because of unexpected unemployment, accident or sickness to keep up their repayments and thus avoid defaulting on their loan. Cover under payment protection can be arranged as a stand alone policy after a loan has been granted, but it is more usual for it to be taken out in conjunction with the granting of the loan.

However, despite the obvious benefits to anyone who finds themselves in the unfortunate circumstance of being made redundant, becoming sick or being involved in an accident thus reducing their income, it may not be appropriate or applicable to everyone. Some lenders have been criticised for pushing the payment protection product to people who will not qualify for any payouts due to their existing circumstances when taking out their loan. The underlying agenda, according to those critics is that the lenders are more interested in maximising their commission from the insurer than in the welfare of their customers.

To qualify for payment protection insurance cover you must be aged 18 - 65, employed for at least 16 hours per week, or be on a long-term contract, or if self-employed then it must have been for a significant amount of time. However, what is sometimes not adequately explained is that if you are made redundant within 120 days of taking out the policy, or if you fall ill with an existing medical condition, or if you are involved in an accident because you have imbibed alcohol or taken drugs then your cover will be invalid.

Payment protection cover is even more of an issue if it relates to personal secured loans. Any secured loan involves your house being put up as security, so the risk in not keeping up repayments on that type of loan could result in the loss of your home. While you must seriously consider how you will keep up repayments on any personal loans that you have taken out if you are made redundant, fall ill or are involved in an accident, your problems would only be compounded if you had been forced to pay premiums for insurance cover that later proves to be invalid.

The Association of British Insurers advise that anyone thinking of buying insurance should get independent advice and ensure that the product is right for them, and that includes payment protection insurance for personal loans.

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