The PPI can be of two types one is PPI linked on cards and the other one is PPI linked to loan. The calculation of the loan amount along with interest will vary depending upon the types of PPI. The calculation is a bit complicated for the layman to understand. You may refer to the site ppiclaimscalculator.org.uk for detailed knowledge about the PPI schemes.
Basically you have to understand the fact that the PPI is for taking care of your emergency situation when you fail to pay your monthly installment of loan repayment. As not paying the installment against some loan in accordance with the agreed terms and conditions is a criminal offence, it may lead to unfortunate situations like police case or forfeiting the property. The PPI is only to safeguard your interest in such unfortunate situation. But sometimes the lender, taking advantage of the ignorance of the loan taker, convinces the debtor to accept the repayment scheme along with the PPI. But you have to understand that it is your prerogative to go for PPI or not and the lender has no say in this affair. So if your financial condition is sound enough to combat any unfortunate situation you must not agree for the PPI which will enhance your installment amount which will comprise of some amount for the PPI insurance also.
Now let us try to understand the PPI calculation when the PPI is attached to the loan. There will arise three conditions namely
- when the loan and the PPI are both live
- when the loan as well as the PPI is inactive
- when both the loan and the PPI are fully remitted
In the first case the situation is conducive for getting simpler calculation. The lender will first calculate your repayment amount along with interest payable for the loan period which you are supposed to pay if you would have opted for the loan without PPI. Then the lender would find out the amount which you must have paid owing to the PPI scheme in addition to the amount you are supposed to pay for your loan amount. Let us take a hypothetical case where a person makes a loan repayment of 200 per month with PPI. The portion of the repayment amount towards the PPI is say 40. So the amount you pay back towards the loan amount comes to 160 only. Now let us consider the period for which the settlement needs to be ascertained is 36 months.
The first case lender has to return the amount which the debtor has paid on account of PPI which @ 40 for 14 months. It works out to 560. An interest @ 8% is to be added for the amount of 560 for the period for which the money was held by the lender. For the balance 22 months the repayment amount will be calculated @ 160 for the rest of the 22 months. The lender has to adjust the correct amount considering the above while making the final calculations. The lender must also add some amount owing to the inconveniences which has been caused to the debtor due to this.
The second case is comparatively clear and the lender has to calculate the amount which he has deducted over and above the exact loan repayment amount. The same has to be returned to the debtor. With this the lender must also pay an interest for the excess money which he has held with him for the period as calculated.
In the third case the lender will calculate the difference that would come between the cases where the debtor has opted for the PPI and the case where he has not opted for the PPI. The lender have to pay the difference amount along with the interest plus inconvenience amount.
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