Published: 01/10/2005

If you're looking for a loan you are probably concentrating on the APR when trying to decide on the best deal. After all, everyone tells us that this is the best way to compare credit. However, if you rely solely on this piece of information you could find yourself with one of the more expensive products on the market rather than what you thought was one of the cheapest.

So how can this be? Well, the APR simply reflects the cost of credit but doesn't take into account the cost of other add-ons such as Payment Protection Insurance and does not take account of penalties if you decide to repay the loan early.

In reality this means that you could end up paying well over the top for your loan whilst the loan provider wallows in the commission they are earning from the sale of payment protection insurance.

As an example, you might be considering a loan with the RAC. Their APR on a loan of £7000 is 6.50% which, whilst not the cheapest is very competitive and at the lower end of the market. Without any payment protection insurance this will cost you £136.35 per month over 5 years. Compare this to say, Nationwide at 6.70% with monthly repayments of £136.97 and you might think you've done pretty well. However, add payment protection insurance and the RAC loan will cost you a whopping £189.24 per month compared to £158.46 with Nationwide. A massive £30.78 per month more or over £1800 extra over the term of the loan. In fact the RAC will be charging you over £50 per month for your payment protection or £3000 over the term of the loan.

You might ask 'how can this be?' Well the answer to that is simply down to one thing - commissions earned by the product provider from the insurance company for the sale of payment protection insurance. This enables them to advertise what looks like a competitive rate to hook you in and then every attempt will be made to sell you the Payment Protection Insurance thus increasing their margin via the back door. This ploy is not confined to just a few lenders, in fact many of the major high street companies will be boosting their profits form the sale of unnecessarily expensive PPI.

Our message is clear get all the facts before you buy and look at more than just the APR.

We have put together the table below to help highlight some of the best deals with payment protection and have also highlighted some of the deals to avoid. We also show the monthly repayment without protection. We hope this helps you keep some additional cash in your pocket rather than lining the pockets of the greedy providers.

One final word of warning. Before you take out Payment Protection Insurance always read the small print carefully and make sure that you will be able to claim in the event that you need to. For example, some policies will exclude anyone who works on short term contracts and most policies will exclude unemployment that occurs as a result of seasonal factors. It's really important that you understand exactly what you are covered for and the terms of that cover, that way you won't end up paying for something which is of no benefit to you.