Loan protection
Personal unsecured loans and secured homeowner loans are
both governed by the Consumer Credit Act. The Act contains
strict regulations about how money is lent and covers loans
up to a value of £25,000.
When taking out a loan you will be asked to sign a credit
agreement. Read this through carefully before you sign,
as you will be bound by its terms. Some lenders offer insurance
policies or payment protection schemes to protect you in
the event of accident, illness or redundancy. However, cover
may vary and you should check with your individual lender
what a particular policy or scheme covers, or more importantly,
excludes.
You have to read the small print on such schemes with a
great deal of care, as many them exclude a lot of illnesses
or other events that you might think you could make a valid
claim under. If that wasn't bad enough the premiums can
be rolled up into the loan so that you end up paying additional
interest on that amount as well.
On the whole, where these products are offered by loan
companies, they are very expensive and you may already be
covered for such eventualities elsewhere, through a works
scheme for example. Considering that most people pay off
their debts early, then unless you are particularly cautious,
loan-specific payment protection can be an expensive waste
of money.
If you do have difficulty making your repayments, seek
advice from your lender immediately. The earlier you do
this, the better, and the more sympathetic they will be.
For example, they may accept smaller payments until you
get yourself back on your feet. Alternatively, you can seek
advice from a voluntary organisation.
