Office for Fair Trading (OFT) decided to recommend a full investigation of the payment protection insurance (PPI) market. It may have its effect on loan market, secured and unsecured, as banks are expected to raise interest rate.

London (shakespearefinance) 25 October 2006: Following the decision of the Office for Fair Trading (OFT) to recommend a full investigation of the payment protection insurance (PPI) market by the Competition Commission (CC) banks are expected to increase the interest ate.

If the interest rate is raised as expected then the loan market will be affected. People seeking to take loans, both secured and unsecured, may have to pay comparatively high interest. However, the rise in interest rate in case of loans cannot be predicted with enough certainty.

Payment Protection Insurances work as an alternative means for paying off a loan in case the consumers fall ill, lose their job, or become incapacitated. It has been discovered by the investigation made by the OFT last week that many of the providers of PPIs were not giving enough value for money. They are also found to misled customers on the length of the cover provided.

In case the recommended CC's investigation matches with the discovery of the OFT and reports that customers are being over-charged, banks and building societies may raise their interest rates as a response.