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Personal loan rates set to increase after PPI ruling

The basic cost of a personal loan looks set to increase after the Competition Commission suggested that banks should be banned from adding PPI insurance to the cost of loans on offer today. The idea is that the banks should be restricted from contacting the customer until 14 days after they have taken out the loan at which point they will be free to discuss the pros and cons of PPI.

When you consider that the average insurance policy will add about £1000 to a £5000 three year loan, this equates to over £1.5 billion a year in commission for the banking sector. The Competition Commission has ruled on this subject because of apparent evidence that insurance costs are being used to subsidise interest rates in various areas of the market. However, this move looks sure to lead to more expensive personal loans as the number of PPI policies sold is set to reduce significantly under the proposals therefore the banks will need to add more headline cost to cover their lost income.

Yet again we have a situation where the Competition Commission and other regulatory bodies have meddled in situations of personal finance only to see the customer pay a heavy price in the end.

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