Understanding Loan PPI

If you have dipped your toe in to the UK loan market in recent years you will have invariably come across the topic of PPI – short for Payment Protection Insurance. Claims of PPI being unjustly sold to consumers became such a big deal that even cold calls were made by companies promising to help you get your money back, even if you never took out PPI in the first place. However despite the controversy it remains a worthwhile option when taking out loans and credit, so understanding how it works (when sold properly) is another weapon in your loan application arsenal.

What Is PPI?

You may see PPI offered by lenders under various names, including loan repayment insurance, credit insurance, or credit protection insurance. The purpose of PPI is to cover the borrower should they fail to make repayments due to joblessness, illness, or other accepted circumstances. This insurance will cover repayments for a certain period of time, hopefully allowing the borrower to get their finances in order to continue making repayments. The duration covered is typically 12 months, but can vary depending on what you agreed and how much you have paid in to the policy.

The key thing to consider with PPI (as with any insurance) is whether you believe the amount you will pay is worth the risk of never having to invoke the policy, because in the long run you will be paying more on your loan.

There are two main types of PPI that you will be commonly offered on loans and credit. These are single premium policies that require you to make a one off lump-sum payment at the beginning of the loan term, or regular premium where you pay the insurance monthly.

Like the loan itself you do not automatically qualify for PPI and you will be assessed by the lender to see if it’s feasible. Because you will be required to pay more, this obviously rests on your ability to do so. Likewise if lenders fear you may end up missing payments, it is in their interest not to sell you PPI. However in such a scenario you are probably unlikely to get approved for the loan either.

To be eligible for PPI in the first place there will also be several basic requirements. This may include age restrictions and minimum working hours. It might also exclude the self-employed and those on maternity leave.

PPI Alternatives

Although not sold by lenders, if you are looking for a way to protect yourself in the case that you cannot afford to make repayments on a loan or credit card, Income Protection Insurance is the most common alternative. This type of insurance usually pays out between 50% to 60% of your income each month, should you lose your job through no fault of your own – including injury or illness. This in turn will help you cover any loan or credit card repayments that would usually be affected by such a change in circumstances and might have been protected under a PPI policy.

Income protection may be more appealing than PPI as it insures your whole income, not just a single debt. For example if you had PPI on a personal loan but not your credit cards, losing your job is still going to be a struggle as you try to find funds to cover the card payments.

A similar option is critical illness insurance, which unlike income protection is paid out in one lump sum should you become too ill to work. It is commonly used in scenarios where the policy holder is ill enough to receive government benefits but still needs enough funds to cover larger debts like mortgages.

Reclaiming PPI

If you have ever taken out credit in the UK (from overdrafts to store cards) it is possible you were sold PPI without your knowledge or full understanding. It is easy to check if a policy existed by going through your statements and looking for terms like “loan protection” or “payment cover.”

If so you may be eligible to claim this back. Common miss-selling tactics included telling the borrower it was compulsory, the policy being opened automatically (mentioned in small print but not explicitly), or if you were self-employed or unemployed but this was excluded from the policy. If the lender has already been fined, your reclaim may be handled on mass without excessive paperwork.

To reclaim all you have to do is send a letter including your account details, the reason why you are reclaiming, and nay dates and relevant statements.

6 Comforting Facts about Student Loans

If you wish to broaden your mind and open yourself up to the job market, studying at university is still a worthwhile option that can bag you a career and a high paying salary. However getting to that point is not free!

Student loans are a big topic of controversy in the UK, and thanks to misleading headlines and political rhetoric it can be quite difficult to understand what they are and how they work. Fortunately the idea that you will be saddled with tens of thousands of crippling debt when you leave University level education is not quite true. Student loans do not function like a personal loan you would take out at the bank, so there is no need to worry about financial hardship, bailiffs and all of the other scary things we often associate with large amounts of debt. It’s a fact that education is not free, but that doesn’t mean you will go broke either. The days of only the rich having access to such opportunities is long gone.

Here are 10 comforting facts about student loans that should put your mind at ease if you choose this method of financing your education.

It is more like an income tax than a loan

It is true that the cost of a University education is steep, with figures as high as £50,000 being floated around when you consider every year of a degree and the associated living expenses. However the repayment terms are set up in such a way that paying it back should not have a major impact on your life. You are only required to begin repayment once you graduate or leave the course and then only if you earn over a certain amount. This currently works out at 9% of any income you earn over £21,000. So if you earned £22,000, you would only need to pay 9% of £1,000 – which is just £90. This can therefore be looked at more like a small income tax than a crippling debt.

If you earn below that figure you won’t have to pay back the loan at all until you begin to do so. The majority of people over their working lifetime will not have paid back the full amount, and this is perfectly ok. It’s not really designed to be paid back in full.

The Debt Is Wiped After 30 Years

On top of the fact that you only begin paying back the loan when you are earning, the entire debt is wiped clean after 30 years. So if you enter University at 18 years old, you are no longer required to make repayments as you enter your 50s.

Your Credit Score Isn’t Affected

A young person (or anyone for that matter) taking out thousands in loans could quite quickly end up with a wrecked credit score, especially if they don’t have the means to pay it back. However student loans are much different. They are not even recorded on your credit report and the only way other lenders can learn whether you have students loans is if they ask you in their applications. In reality this is usually only sought when applying for a mortgage. In other words your credit rating will not be affected by taking out a student loan.

You Can Repay Early, But There’s No Point

A lot of loan products require you to see through the full term as a way to ensure you pay the most amount of interest. This is not true of student loans, which you are free to repay in full at any time. However there is no practical reason to do so, unless you earn a considerable amount. Furthermore if you choose to forgo the loan completely and pay the fees upfront, you may actually be £10,000s worse off in the long run, depending on your income.

Loans are for Tuition and Living Expenses

Loans with the same repayment terms are now available for living expenses, not just tuition fees – meaning if you move away from home to pursue a degree you can borrow enough to cover your rent, necessities and course related materials, without having to eat in to important study time by working a job. These loans are means tested, so if your parents don’t earn a lot or you live alone, you will be able to get up to £8,430 (if you reside outside of London, where you can get even more).

Most People are in the same Boat

It’s easy to slip in to the victim’s mind-set, but unless you are one of the few privileged that pay for their education upfront, you are in the same boat as everyone else. So when you think of future earning potential you are also comparatively no worse off than anyone else either.