Personal loans are often used for a variety of different means, when Brits want a new car for example, but cannot afford to pay for it outright with the savings they already have, or to cover something like a wedding, or a holiday.

These loans work by paying the customers a lump sum once they have been accepted and an interest rate calculated and a repayment period.

Sometimes consumers even take out personal loans as a means to pay off their debts; these are often called consolidation loans – whereby the loan company pays off all the customer’s debts so they only need to repay the loan company with one monthly repayment.

Because these loans are usually taken out by people who cannot afford to pay for something quite expensive out of their current funds, they usually find it takes them a while to pay back the loan, as if they pay back just the minimum each month then obviously it will take them longer to repay it all and the interest will be more in total so the actual amount they end up spending is higher than the loan.

Those who take out loans like this often do not have adequate savings to use instead of the loan so if they were to lose their main source of income either due to an accident that prevents them from working, or through job loss, then they may have no way to repay this loan and they could become burdened with unmanageable debt.

This is why loan protection or what it is often called payment protection insurance (PPI), is offered to customers taking out these types of loans.

PPI protects the loan borrower should they be unable to meet their monthly repayments due to being unable to work. So the borrower pays a premium each month towards this insurance, so should they need to claim on it, it will cover their repayments so they do not stack up and accumulate interest – which could make them impossible for the borrower to repay.

The same thing occurs with credit cards. So when a customer applies and receives a credit card from their bank, whatever type of card it is, even if it has a 0 percent interest period for balance transfers and purchases, they will get offered PPI.

This is to protect the card user in the same way as the loan borrower, as a credit card is in effect borrowing in every sense of the word, as the card user borrows money from the bank to then receive a bill at the end of the month.

The borrower is likely to earn interest on these repayments if they do not pay back the full amount. So if again their income is lost due to job loss for example, then they may be unable to meet these repayments – even the minimum.

So hefty bank charges could rack up on the borrower’s credit card bills – all of which makes it harder for him or her to manage the debt when they finally start receiving an income again.

PPI is not compulsory, but some customers in the past were told it was. This is just one way in which Payment Protection cover may be mis-sold. Those who were mis-sold are being urged to pursue a ppi refund.

While PPI can be very useful, the provider cannot add it to the cost of the loan or credit card without the customer’s knowledge, or make it unclear that they are paying for it by hiding it in the small print of the paper work.

Another way providers have mis-sold PPI is by selling it under false pretences, this could be a person who has PPI but would never be able to make a claim on it as they are not eligible to do so. These people include pensioners, students and the self employed, as the first two do not have an income, and the latter’s income is dependent on more complicated factors.

So should these people be unable to pay their repayments, their PPI – which they had been paying premiums for – would not pay out whatever their circumstances.

If you believe you could be entitled to claim back ppi from their bank you could use a claims handling company to assist you with your claim.

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