Cash Back Loans Could Cost More
Nobody knows what the future holds, and this is why many consumers that take out loans want to ensure that they have payment protection, so that should anything untoward happen they or their loved ones and not lumbered with an unmanageable debt to repay. There are some good deals available on insurance for those that shop around, but many people get duped into taking out insurance through the lender with which they take out the loan, which is often works out far more expensive.
Experts from Moneyfacts have now started warning consumers about a new tactic that is being used by some lenders in order to tempts consumers to take out their protection insurance rather than to shop around and look for the best deal. A number of lenders are now offering cash back on personal loans, where the borrower receives a stipulated amount or percentage as a lump sum upon completion of the loan.
Although this can sound like a really tempting offer for those looking for a personal loan, because it means that they will have a little extra cash in their pockets, Moneyfacts has warned that over the longer term it could end up costing the consumer far more. This is because part of the conditions set down by some of these lenders is that the consumer takes out protection insurance with them in order to qualify for the cash back offer.
One finance analyst from Moneyfacts stated: “ While the prospect of a cash payment from your loan provider may sound attractive, over the term of the loan, better deals can be found.” She added: “Opting for a loan with
Northern Rock, currently offering a best buy rate of 5.7 per cent you could save £214.03 over the
Nationwide BS loan, even when taking the promotional cash back offer into account.”
Alisdair Milton
9th November 2006
More Information:
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If you're taking out a sizeable loan, the idea of payment protection may sound like a good idea. Programs such as these protect buyers in the event that they are unable to make payments on the loan due to events such as layoffs or medical emergencies.
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Almost every time you apply for a loan or other form of credit, you are asked if you would like to purchase credit insurance. It my even be automatically added to your contract without you noticing.
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It is all too easy for consumers to become complacent when it comes to finances, and loans are one example of this. Many people remain with the same lender or the same loan set-up simply because it's easy and familiar.
If you have payment protection on any personal loans that you may have made, did you know that you could be paying upwards of £2000 on top of the original debt including the interest?
Article relating to loan fees and loan penalties for loans in the UK. Includes information about arrangement fees, loan insurance, loan transfer costs and early redemption penalties
