Sainsbury’s Bank has the most expensive payment protection insurance (PPI) out of the major lenders, costing over five times that of a standalone policy from British Insurance.
PPI is designed to cover payments on a debt – usually mortgages, credit cards or personal loans – should you fall ill, have an accident or become unemployed.
We compared the cost of tacking a policy onto a loan at 12 players in the UK personal loan market and found that, while there is a massive variation in cost, none of the lenders offer a competitive PPI deal.
Standalone policy is best
Sainsbury’s Bank charges a hefty £2,984 to cover payments on a £10,000 four year loan, while at Royal Bank of Scotland the fee is £2,768.
At the other end of the scale, Your Personal Loan is over £1,000 cheaper at £1,970, but this is still nearly four times more than the £518 it will cost to cover the same loan at British Insurance.
If you do want cover for your loan, it's actually more important you find a competitive policy than it is to find a cheap loan.
When we compared the various lenders deals we found a difference of £739 between the cheapest (Your Personal Loan) and most expensive (RBS/NatWest) loan, but a £1,014 difference in the cost of PPI.
Remember this is just comparing the lenders' own PPI policies - factor in the savings with a standalone policy and the difference is an astronomical £2,465.
The table below shows the cost of the various PPI deals, ordered from cheapest to most expensive.
£10,000 personal loan over four years
| APR | Cost excl PPI | Cost incl. PPI | Cost of PPI |
| British Insurance | | | | £519 |
| Your Personal Loan | 6.9% | £11,425 | £13,395 | £1,970 |
| Smile | 7.9% | £11,634 | £13,639 | £2,005 |
| Abbey | 7.9% | £11,634 | £13,958 | £2,324 |
| Halifax | 8.4% | £11,898 | £14,295 | £2,397 |
| Lloyds TSB | 7.9% | £11,644 | £14,084 | £2,440 |
| MoneyBack Bank | 6.9% | £11,434 | £13,923 | £2,489 |
| Bradford & Bingley | 7.9% | £11,634 | £14,128 | £2,494 |
| AA | 6.9% | £11,564 | £14,131 | £2,567 |
| Alliance & Leicester | 7.7% | £11,601 | £14,172 | £2,571 |
| NatWest | 10.4% | £12,164 | £14,892 | £2,728 |
| Royal Bank of Scotland | 10.4% | £12,164 | £14,932 | £2,768 |
| Sainsbury’s Bank | 7.3% | £11,656 | £14,640 | £2,984 |
Bad reputation seems deserved
PPI has been widely criticised by consumer groups as a money making racket for the banks, and it’s not hard to see why: A Competition Commission report released earlier this year claimed banks are making profits in excess of 900% from PPI, pocketing £1,200 from a policy that costs them just £20.
Because of the high profit margins on offer, many lenders have been trying to sell these policies too aggressively, or mis-selling them to people who they know won’t have a chance of claiming.
If you fear you may have been mis-sold a policy, read our guide on claiming a PPI refund here.
