The majority of mis-sold payment protection insurance (PPI) plans were single premium plans, with the premium amount added to the loan. The capital and interest on the PPI premium were then repaid in monthly instalments over the term of the loan, alongside repayments on the loan amount itself. The PPI often ceased well before the end of the loan, for example it might only cover the first five years of a 25 year mortgage or loan.
If you donít know what the monthly payment you make each month for PPI is, sometimes this is because the monthly payment for both the loan and the PPI will be bundled together on your statement as one figure. In this case, you should find on the internet a tool that calculates typical loan repayments, and enter the amount, term and interest rate of your loan. Then subtract the amount this gives from your monthly payment, which should tell you how much you pay each month for PPI.
PPI Calculator Average
If you canít work out your monthly PPI payment, the best advice is to assume that 15% of the amount to be repaid under your loan is for PPI. This is the average proportion, although this percentage can vary between 10 and 30.
Once you know the monthly PPI payment, you can calculate likely compensation based on which of these scenarios applies:
Loan and PPI have ended after running full term. Multiply your monthly PPI payment by the number of months in the loan term, then multiply by 1.08 (to take account of 8% being added to your compensation to cover statutory interest)
Loan is still in force but PPI term has ended. Multiply your monthly PPI payment by the number of months the loan has been in force for. Then an amount will also be awarded which corresponds to the amount of the PPI premium you still had to repay ñ this amount is harder to calculate. Again, the total sum can be multiplied by 1.08.
Loan and PPI are still in force. As above, except here you are also likely to be entitled to a partial early cancellation refund of your PPI single premium under the terms of the policy. Any such refund can be set against the amount of redress the company needs to pay.
Loan and PPI are no longer in force after loan was redeemed early. Once again you will be entitled to a refund that includes the monthly PPI payments made, and any early cancellation refund will be set against the compensation amount. However, here you can also expect an additional sum which corresponds to the difference between the amount you had to pay to settle the loan, and the amount you would have paid if there was no PPI.
Restructuring based on the PPI Calculator
In the second and third instances, the lender should re-structure your loan so that the subsequent payments you make are only to repay the loan amount and interest on it.
Having an idea of how much compensation you are due could be vitally important. If you havenít been offered enough, you should seriously consider referring the complaint to the Financial Ombudsman Service (FOS).
Examples of how the FOS calculated redress:
Several websites contain a PPI calculator where you can find out how much you might receive.
The average PPI compensation payout is around £2,750 as at January 2013, but in some cases this can be much higher.
All information presented in this article is accurate as of February 2013