Personal unsecured loans and secured homeowner loans are both governed by the Consumer Credit Act. The Act contains strict regulations about how money is lent and covers loans up to a value of £25,000.

When taking out a loan you will be asked to sign a credit agreement. Read this through carefully before you sign, as you will be bound by its terms. Some lenders offer insurance policies or payment protection schemes to protect you in the event of accident, illness or redundancy. However, cover may vary and you should check with your individual lender what a particular policy or scheme covers, or more importantly, excludes.

You have to read the small print on such schemes with a great deal of care, as many them exclude a lot of illnesses or other events that you might think you could make a valid claim under. If that wasn't bad enough the premiums can be rolled up into the loan so that you end up paying additional interest on that amount as well.

On the whole, where these products are offered by loan companies, they are very expensive and you may already be covered for such eventualities elsewhere, through a works scheme for example. Considering that most people pay off their debts early, then unless you are particularly cautious, loan-specific payment protection can be an expensive waste of money.

If you do have difficulty making your repayments, seek advice from your lender immediately. The earlier you do this, the better, and the more sympathetic they will be. For example, they may accept smaller payments until you get yourself back on your feet. Alternatively, you can seek advice from a voluntary organisation.