Borrowers can save thousands of pounds on the cost of borrowing if they if they choose independent payment protection insurance rather than a pre-packaged policy, say two new studies.
Millions of people in the UK remain unaware that they can opt for a policy from a specialist insurer when they apply for a homeowner loan, however.
Some are unaware that they are paying for insurance at all, says research carried out by specialist credit insurer Paymentcare.
Providers are often packaging pricy policies into their best rate offers and do not always making it clear to consumers what they are buying, adds the company.
Every lender approached over the course of the study included the price of insurance in the first best rate quoted. On a £7,500 loan, repayable over a five year period, Paymentcare calculated that borrowers could save £3,353 with an independent policy.
“On each occasion the mystery shopping team was left thinking that they would be at a distinct disadvantage if they did not take out the additional insurance,” said Shane Criag of Paymentcare.
“Yet there was no attempt made at the point of sale to establish whether the cover was appropriate. Bank sales teams are encouraged to pursue hard sell tactics, as lenders make high levels of profit from selling payment cover.
“We estimate that of the £4 billion spent by borrowers on payment cover every year, around £2.5 billion goes to banks in commission payments,” he added.
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