How to Save Money on PPIs With Loans: Is Payment Protection Insurance on Personal Loans Necessary?

Loan protection insurance is sold to borrowers as security against unforeseen circumstances such as injury or redundancy. However, according to a BBC’s news report, “Crackdown on Misselling of PPI” (BBC News) customers are being sold PPIs inappropriately. In one case, a debt was written off due to the misselling of a loan with a PPI. This would indicate that customers must be especially wary when purchasing loans.

Guide to Getting a Cheap Loan

Finding cheap cover from compare sites and playing one against the other is a great way of obtaining cheap cover. However, loan insurance annexed to a loan with low APR can make it expensive. In fact, according to Money Saving Expert’s report, “Reclaim PPI Loan Insurance,” the cover may work out to be twice as costly as the cost of the loan itself. Furthermore, the Financial Services Authority (FSA) has issued heavy fines to loan companies for attaching PPIs to loans without customers’ notification.

With this in mind, the following has important relevance:

  • The PPI is not compulsory with the loan. If the lender suggests otherwise or tries to coerce the customer in this way, this is deemed to be a misselling of the loan and should be reported to the FSA or the Financial Ombudsman (FOB).
  • When purchasing a cheap loan, customers are within their rights to shop around for cheap cover too. An independent loan insurer will cut the cost of the cover drastically.
  • The customer is paying for useless cover if it does not fit the circumstances. Redundancy insurance, for instance, is useless for a customer who is self employed. A miss selling of loan insurance in this way can be claimed back if the customer takes appropriate action against the loan company.
  • Take extra vigilance for hidden fees.

The Cheapest Unsecured Loans

The consumer may consider dispensing with payment protection if the following does not apply:

  • If the loan is secured
  • If the loan is considerable
  • If there are other debts
  • Circumstances are unstable

Before taking out payment protection, address the following:


  • Payment protection runs for a year. After this period, the cover no longer applies. Is the premium worth it?
  • Again if the loan is small, the cost of the PPI premium may not be worth it.
  • The consumer must work out the maximum payout and weigh this up against the cost of the loan.
  • Is the consumer already covered in another policy? If so, the cover is unnecessary.
  • Instead of paying the monthly costs of payment protection, the consumer may consider depositing the money in a high interest savings account. An instant access Cash ISA could be ideal for this purpose. It earns relatively high interest, is tax free and the money is available instantly.
  • If the ISA is full, a regular savings account yields high interest on savings so long as the account holder regularly drip feeds funds into the account.
  • If the unforeseen happens without cover, the lender may sometimes agree to defer or reduce payment.

Cheap Loans and Cover

Customers may save thousands by taking vigilance over the cost of payment protection on loans. Finding a cheaper quote from an independent insurer is a shrewd move, but the necessity of a PPI may be questioned if the risk factor of not having one is low.