Borrowers ripped off 500% on personal loans cover

Consumers could be shooting themselves in the foot by taking payment protection insurance (PPI) from their lender, says a new personal loans market survey.

Some insurance policies can add £3,000 to the value of a £10,000 personal loan, increasing the cost by 467 per cent. Banks often charge as much as five times the price individuals can find at insurance brokers for the same cover.

Personal loans payment insurance bought separately could cost just over £650 for a period of five years, without reducing the amount of cover provided.

Nick White, personal loans and finance analyst, said: "The willingness of providers to promote payment protection insurance can lead to policies being mis-sold to consumers"

"Many are under the mistaken belief they are getting the best rate, or that by simply taking out this product they may be more likely to be approved for personal loans." He added that the APR of personal loans can increase once the insurance is added to their value.

An FSA investigation recently found that many banks were mis-selling PPI policies, which cover personal loans payments if the borrower becomes ill or loses their job.

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