Payment Protection Insurance or PPI for short is offered with many personal loans, this type of loan insurance is designed  to cover your loan repayments if you become unemployed or can’t meet the repayments due to ill health, (it’s actually designed to make huge profits for lenders) however  the cover is nearly always expensive and wrapped up in terms and conditions that make it difficult to make a claim, the PPI industry is also notorious for mis-selling loan insurance.

A recent review of the PPI market for the OFT by the Financial Services Authority found that borrowers that take up personal payment protection suffer huge additional costs, for example, a £ 5000 loan over five years at 6.1 per cent APR actually had an interest rate of 22 per cent when payment protection insurance was factored in.  However lenders that want to push PPI must now show the whole cost including the insurance in their APR. The good news is that  from October 2010 the sale of PPI with  loans will be banned, until then just be careful what you sign up for.

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