Payment Protection Insurance: Pros and Cons!

According to one statistic, payment protection insurance claims have risen to 118% in the US alone. This is due, in large part, to the recession and high unemployment figures. What is payment protection insurance or PPI?

Basically, it provides a buffer for anyone who has become ill or unemployed by protecting loan payments and preventing the possibility of default. PPI can be purchased for car loans, personal loans, credit cards, and mortgages.

Payment protection insurance allows for short-term coverage, usually from one to two years. The standard policy is available to anyone that is employed full time or works part time for at least 16 hours a week, regardless of age, gender or occupation. This policy is usually available at the time a loan is obtained and requires a monthly payment commensurate with the amount of protection you require.

The cost of a PPI policy varies depending upon the state in which you live, the amount of coverage, and the provider you choose. For example, one insurance provider offers a PPI policy up to $70,000. The cost is 5.5 cents per $100 loan balance for a single, and 8.8 cents per $100 for a couple.

However, there is one disadvantage in purchasing a PPI policy from a bank or other lender and that is they may charge higher premiums. In fact, in some cases, lenders may automatically add the cost of the insurance to the loan without your knowledge. This results in your paying interest not only on the PPI but on the loan as well.

In addition, there are certain eligibility requirements. Some providers may not offer a PPI to retirees, those who are self-employed, or to part-time workers. That is why it is recommended that you research many insurance providers to find the most affordable and effective PPI policy that suits your specific needs. One example given is that if you are not working, you can opt to select a PPI policy that only covers illness or accidents.

On the other hand, there is a unique advantage in obtaining a PPI. It does not adversely affect your FICO score because the monthly payments are being made through the insurance provider without interruption.

There are different policies available through providers, and it is recommended that you check the exclusions and peruse the fine print so that you are aware of all aspects of the policy.

How to Shop for a Car Loan

Shopping for a car loan requires time spent researching various options. Lets take a look at a few of these options.

Lets assume you are purchasing a new car from a dealership. Odds are before you leave the lot with your new car, you will be escorted into the financial office where you may be asked to sign up with a specific insurance company. While this may save time and, in some instances money, you may wish to shop around and ascertain if there are more affordable rates out there.

Shopping around for the most affordable rate is a good idea. Where do you begin? Call or visit your bank. Ask about their car loans and interest rates. If you have obtained other loans from your bank, they are more inclined to offer you the best rate.

Also, check other banks in your area. They may offer slightly lower rates than your bank and perhaps you can use this lower rate as an incentive to your own bank to work with you.

Another option is to check with finance companies. Keep in mind, however, that their interest rates may be higher due to the fact that they work independently. That is, they borrow money at lower rates and then hike it up to consumers.

Credit unions are another option you can check. If you are a member, you can enjoy reduced rates on loans.

Online websites also offer a wide range of loans and interest rates. However, ensure that the company is legitimate, has a telephone number and address on its website, and is an approved licensed entity. It should be noted that if you do decide to use online websites, you may be inundated with emails and phone calls, particularly if the information you provide is given out to third parties.

Finally, you may wish to consider a home equity loan. There are two benefits using this option. One; the interest rate may be lower, and two; you can deduct the interest on your income tax. Here too, there is a risk - if the mortgage payments cannot be made, the home may be placed in jeopardy. However, with a car loan, the most you can lose is the car.