Signing up to payment protection insurance can add 467 per cent to original amount of money borrowed, according to new figures.

Utilities advice service uSwitch found that some policies can add £3,000 to the cost of repaying a £10,000 loan.

A recent report found that customers are being mis-sold a large number of payment protection policies by their banks.

However, banks and insurers say that payment protection insurance is a valuable product and that they receive around 500,000 claims each year from those who need help with their repayments.

Nick White, head of personal finance at uSwitch said that customers need to shop around to get the best deal.

"The willingness of providers to promote payment protection insurance can lead to policies being mis-sold to consumers.

"Many are under the mistaken belief they are getting the best rate, or that by simply taking out this product they may be more likely to be approved for a loan," he said.
Figures show that payment protection for a five-year £10,000 loan can cost £3,063.60 if bought from the loan provider. But the same level of cover can cost £656.40 if bought separately.

"Consumers who take out payment protection insurance with their loan, need to be conscious that the APR increases once payment protection insurance is added to the loan amount - in some cases this can be by as much as 11 per cent.

Mr White continued: "More worryingly for consumers, is that the cost is sometimes added to the total amount borrowed and then interest is charged on both."