The end of SPPI is good news
Consumer groups, such as the Citizens Advice Bureau, have been campaigning for some time against SPPI (Single Premium Protection Insurance) for a number of reasons. A full ban is scheduled from 2010. Finally, some good news!
Unlike monthly insurance policies, with SPPI you pay for the policy in full upfront. This is then added to the loan which means that you also pay interest on the insurance premium. Most of these policies also had very poor or even non-existing refund policies so that if after 2 years you wanted to pay the loan off, you would have to pay off the full insurance premium. When you combine the expensive premiums with the multitude of exemptions they put in the small print (so the insurer wouldn’t have to pay out) and you can see why it really wasn’t a good product for the consumer.
SPPI was so profitable for the banks that the money they made actually helped to keep the APRs (loan rates) artificially low. Indeed when you consider that 18 months ago, when most banks were selling SPPI and the Bank of England base rate was 5.75%, you could get a personal loan at 6.8%. Today, banks only sell the far more consumer friendly monthly insurance policies, base rate is down to only 0.5%, and yet the lowest APR rates for personal loans are now around 8%. Of course there are other factors, such as the credit crunch, which have also impacted APRs.
Overall though, even at today’s higher APRs, if you take out a monthly insurance policy to cover your loan, compared to the same loan with SPPI cover 18 months ago, the combined cost of the loan and the insurance is cheaper today and can provide more comprehensive cover.
