After the announcement that an estimated one million people are turning to payday loans to cover their mortgage and rent, Tim Johnson, CEO of insurance provider Paymentshield, highlights the dangers of payday loans and suggests that for some of these people insurance would have helped to remove some reliance on these lenders.
Payday loan companies do not have a wholesome reputation. The exploitation of the most vulnerable borrowers with exorbitant interest rates has been well documented, whilst the Office of Fair Trading found widespread evidence of irresponsible lending and breaches of the law last year. This led the government to announce a cap on payday lenders in November, yet worryingly people still turn to these businesses to help pay their mortgage or rent without always considering what other options they have.’
Mortgage payment protection insurance (MPPI) offers homeowners the reassurance that their mortgage repayments will be covered should they find themselves unable to work due to accident, sickness or unemployment. It can even pay out if the insured continues to earn sick pay from their employer. This means that, should the worst occur, there is no need to turn to the payday lenders to ensure that mortgage repayments are made in order to keep the roof of your head. .
Those in rented accommodation need not be excluded. Though MPPI is not applicable, short term income protection insurance (STIP) is. STIP is designed to pay you an agreed monthly income, typically for up to 12 months, in the event of accident, sickness or unemployment. Again STIP may pay out even if you are earning sick pay from your employer.
The flexibility of MPPI and STIP policies is also an important consideration. Not only are they extremely manageable, starting from as little as £5 a month for full Accident, Sickness and Unemployment cover, but policies can also be tailored to include other bills such as council tax and utility bills, adding further financial stability.
With 41 per cent of us suffering redundancy or illness during our working lives, this kind of policy seems ideal. Unfortunately, they are too often ignored, resulting in more people getting into financial difficulties and feeling as though they have no option but to turn to payday loans despite their high interest rates.
They may seem like a quick and easy solution to a short-term problem, but as we have seen, payday loans can soon exacerbate financial worries. With a little foresight and planning, MPPI and STIP can ensure that you are able to maintain control over your finances during times when worrying how to pay your mortgage or rent is the last thing you need.
