Insurers charge on average 22.7 per cent to spread your payments, says MoneyExpert.com
Drivers aiming to ease the pain of record motor insurance premiums by switching to monthly direct debit risk paying as much as £182* for the privilege, analysis by MoneyExpert.com shows.
Its research shows just one in 12** motor insurance policies do not charge extra for paying by direct debit and the average charge is a staggering 22.7 per cent. On an average annual comprehensive policy costing £806 that will mean an additional £182 for opting to pay monthly for your insurance.
The independent financial comparison website’s analysis shows APRs on policies which charge for paying by direct debit range from seven per cent to as much as 37.12 per cent. On an APR of 37.12 per cent the additional charge for using direct debit on an average comprehensive premium would be nearly £300.
Insurers justify the APR on the basis that they are allowing customers to spread the risk over a year and are effectively giving customers a loan. If you have an accident after just a month of starting a policy you are fully covered but have only paid a month’s premium.
Sean Gardner, Chief Executive of MoneyExpert.com, said: "Motor insurance premiums are at an all-time high and experts reckon they will continue to climb as both the number of claims and the value of claims continues to increase.
"Given that average comprehensive annual premiums are £806 it is no surprise that drivers opt to pay monthly to spread the costs over the year rather than paying in a lump sum. But that option comes at quite a substantial price.
"Motorists can still get good deals by shopping around and you should always review your insurance every year. But when you look around make sure that your savings are not going to be swallowed up by the extra cost of paying by direct debit.
"It can make sense to pay upfront on a credit card as the APR charged will usually be cheaper than the average 22.7 per cent demanded by insurers. Look for zero per cent introductory rates on credit cards."
Insurers who do not charge for paying by direct debit include Virgin Money, Insure.co.uk, Heyday and Norwich Union on its Just Car policy. Age Concern and Saga also do not charge although their policies are not available to all drivers.
Firms which charge below average APRs include MoreTh>n at 13.7 per cent and Cornhill Direct at 13.92 per cent.
Insurers’ terms for direct debit vary and will depend on how many monthly payments you make. Quotes may include a fee and an APR. Customers should ask what the APR is.
Anyone buying insurance should always shop around before buying a policy. You can also cut your premium by opting for a higher excess – the amount you have to pay before insurance takes up the bill.
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* Based on AA Insurance Premium Index January 2007
** Research conducted on Defaqto Aequos database February 27th 2007