A friend of mine took out a loan with Barclays two years ago and it has three more years to run.
At the time he took it out he was quoted an APR of 15.9%. He was told that he would also have to have a once-off large 'insurance' premium added to the loan.
I've been looking at his loan agreement. It does say that the APR is
15.9% but that's only right if you assume that the amount borrowed was the actual amount borrowed plus the insurance premium. If you calculate it on the sole basis of the actual amount borrowed (i.e. that actual amount he got into his hand two years ago) then the APR is more like 25%.
Is this legal? i.e given the fact that the insurance policy was not optional, is Barclays entitled to quote an APR based on the amount borrowed plus the insurance premium?
Some lenders (I'm thinking of pawn brokers, cheque cashers and other dodgy places) charge 25% per week (100000% Apr). It doesn't sound legal, but somehow they manage to keep doing it.
Peter wrote in news:5f56nvop6s47knkbrlsbehnmsjmq3vhe2l@
4ax.com:
The insurance premium will have been paid to the insurance company "up front" to cover the whole term of the loan. Barclays paid this on your friends behalf then added the extra money he had borrowed to the loan rather than having him pay the whole amount himself. Thus the APR is correct. Not exactly ethical but we all do it. The argument is that by doing this it fixes the insurance premium for the life of the loan for him. Also it gives Barclays the insurance earnings in one hit up front rather than taking the comission from the insurance company across the life of the loan.
But surely if the 'insurance' is compulsory then it is illegal to add it to the loan amount for the purposes of calculating APR? I thought that ALL compulsory fees had to be included in the APR i.e. not considered part of the amount borrowed.
If what you say is correct then any loan shark could offer a loan of £1000 at an APR of 1% just by saying that an insurance premium of £500 has to be paid up front. The real interest rate would be something close to 60%. That would make an absolute mockery of the Consumer Credit Act and APR legislation.
Scott Williamson wrote in news:bl1h27$nhs$ snipped-for-privacy@new-usenet.uk.sun.com:
But it's not a fee. You get something for the money your pay out. Its the same with mortgage indemnities at the lenders request, these are compulsory and if you dont pay it up front it's added to your mortgage balance, a fee is included in the charges, not the loan amount.
But I have to agree Barclays would be on very thin ground to say the insurance, assuming it is Payment Protection, is required. Sounds more like dodgy sales tatics to me. Write to Barclays expressing concern at their sales tatics and see if you can get it cancelled.
Yes it was compulsory. In fact I rang them on my friend's behalf earlier this week (his English isn't marvelous) and asked them if he could just cancel the insurance protion for the remaining period of the loan (3 more years). They said he couldn't. If he wanted to cancel the insurance he would have to take out a new loan and, without insurance, the rate would be far higher than 15.9%.
Additionally, and to add insult to injury, the rebate on the insurance premium would not be made pro rata i.e there's a heavy penalty for cancellation. This, despite the fact that two years ago he was told that there was no redemption penalty on the loan. The even more frustrating thing is that they continue to maintain that there is no redemption penalty because their logic is that the insurance policy is not part of their part of the loan. Awful!
How do you know that? The rest of your post doesn't show that to be true. If your friend has a poor grasp of English, isn't it possible he was merely "persuaded" to take up the (lucrative) protection insurance.
In fact I rang them on my friend's behalf
Can't be true. Barclays are advertising loans with a typical APR of
9.9%, and, like I said, they don't explicitly say that protection insurance is compulsory.
Look......thanks for your replies on this....much appreciated.........
That is possible.
Ok....but isn't that only for people who pass their credit checks? A newly arrived Brazilian without a decent credit history is on a more sticky wicket. As I understand it, the 'insurance' policy provides two things:
1) Insurance for my friend if he gets ill or unemployed
2) Insurance for Barclays if my friend goes AWOL !
My understanding is that the reason the insurance is compulsory is that provision 2) is what Barclays needs to grant the loan in the first place. Provision 1) is of no consequence and is used to convince the customer that he's getting 'something' for his premiums.
Peter wrote in news:qckgnv08e6ebpmgdp9ssp8ns0mhl93t1q4@
4ax.com:
Sounds fair enough to me then. If he had just arrived in the country with no credit history and Barclays were willing to lend him money then he did well. It's risk and reward. I've told 2 people today they can sing for their money on secured loans, because they have only just arrived in the UK on secondment with the same employer for a fixed contract, if I worked for Barclays he wouldn't have got the money!
Perhaps I should explain this one for the benefit of all concerned......(I am a branch manager for Barclays)
Payment Protection Insurance (PPI) is an insurance policy that can be taken out on a loan which covers three main events:
1 Death (loan repaid in full)
2 Sickness - Loan payments made until borrower returns to work or loan paid off
3 Redundancy - loan payments made until borrower finds gainful employment or loan paid off.
(In a nutshell)
It in no way protects Barclays (although loan repayments are assured if any of above happen to borrower!). Without this insurance the loan payments would be collected from the customer's account whether or not any of 1,2 or
3 took place. ie the argument "but I have broken my leg and cannot work, so I'm not earning money and hence cannot afford loan payment" would not wash.
The PPI is purchased upfront as a single premium policy which is added onto the loan balance at the time of drawdown, and the repayments take the repayment of insurance into account. As Barclayloan interest is calculated daily, the stated interest rate of the loan (in this case 15.9%) is thus charged on the insurance policy as well as the loan capital.
Barclays' lending decisions are based on continual assessment of account performance as well as other criteria such as credit reference agency info etc etc.
Consequently, if a customer has a loan with PPI and wishes to refinance without PPI he/she will have to apply for a loan based upon their current credit score, and accordingly any new finance may be approved at a higher rate than the existing loan. The same principle will also apply if the new loan amount required falls into a higher APR lending 'bracket'.
Lastly PPI is not now, nor ever has been, compulsory. It cannot be forced upon a borrower nor a loan be approved subject to it's acceptance.
And Peter, please explain to your friend that the APRs offered on loans are independent of PPI inclusion. If the rate is significantly higher than
15.9%, it is cos your friend runs a poor account, not lack of PPI.
Hope this helps. Oh and please everyone, this is MY opinion, not an official edict!!
Ok........mind you, repayment on death sounds like a reduction in risk to Barclays that can be quantified as such and therefore should 'tend' to reduce the interest rate.
But, additionally, the insurance company is also part of the Barclays group and the value of the extra business can be quantified and should also 'tend' to reduce the interest rate. Finally, if cancelled, the insurance premium is not rebatable on a pro rata basis (i.e. there is a redemption penalty) and that has a value which can be quantified that would also tend to reduce the interest rate.
I don't think you can argue that the insurance is of no consequence to Barclays. A customer who takes out insurance is far more valuable to Barclays than one who doesn't. It would be commercial madness if Barclays weren't to take this into account when calculating profit on their loan business....and therefore their ability to reduce interest rates in a competitive market.
Agreed......that's the way it is in my friend's case.
Hang on here...........something smells fishy. Why can't Barclays just allow the insurance to be cancelled if it's not compulsory? Why can't my friend cancel the insurance, receive the premium rebate (less the penalty of course), add that to the loan account to reduce the balance of the loan and continue paying the loan off as normal? You agree that's there's no redemption penalty on the loan itself? Why does he have to arrange a new loan?
Can't you see the contradiction here?
Also, Isn't it strange that:
1) Barclays chooses to make the premium payment up front when most insurance premiums in the retail market are made monthly.
2) That there's a hefty penalty on premium rebate
3) That the insurance company is also Barclays
4) That my friend says he was definitely told that he HAD to have the insurance.
5) That I know that Barclays branch staff get commission on loans arranged above a monthly minimum.
6) That when I spoke to Barclayloan on my friend's behalf they told me that the interest rate would DEFINITELY be higher if he were to refinance. They had no access to a credit check on my friend (other than his perfect payment history on the loan).
I can see the following reply from Peter on Google, but it is not being picked up by Virgin.Net, my ISP. Can anyone else see the original post via their news servers?!
Most confused Marcus
Ok........mind you, repayment on death sounds like a reduction in risk to Barclays that can be quantified as such and therefore should 'tend' to reduce the interest rate.
But, additionally, the insurance company is also part of the Barclays group and the value of the extra business can be quantified and should also 'tend' to reduce the interest rate. Finally, if cancelled, the insurance premium is not rebatable on a pro rata basis (i.e. there is a redemption penalty) and that has a value which can be quantified that would also tend to reduce the interest rate.
I don't think you can argue that the insurance is of no consequence to Barclays. A customer who takes out insurance is far more valuable to Barclays than one who doesn't. It would be commercial madness if Barclays weren't to take this into account when calculating profit on their loan business....and therefore their ability to reduce interest rates in a competitive market.
Agreed......that's the way it is in my friend's case.
Hang on here...........something smells fishy. Why can't Barclays just allow the insurance to be cancelled if it's not compulsory? Why can't my friend cancel the insurance, receive the premium rebate (less the penalty of course), add that to the loan account to reduce the balance of the loan and continue paying the loan off as normal? You agree that's there's no redemption penalty on the loan itself? Why does he have to arrange a new loan?
Can't you see the contradiction here?
Also, Isn't it strange that:
1) Barclays chooses to make the premium payment up front when most insurance premiums in the retail market are made monthly.
2) That there's a hefty penalty on premium rebate
3) That the insurance company is also Barclays
4) That my friend says he was definitely told that he HAD to have the insurance.
5) That I know that Barclays branch staff get commission on loans arranged above a monthly minimum.
6) That when I spoke to Barclayloan on my friend's behalf they told me that the interest rate would DEFINITELY be higher if he were to refinance. They had no access to a credit check on my friend (other than his perfect payment history on the loan).
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