Rip-offs are all around in the finance world as firms continue to dream up new ways to part us from more of our cash.
– HSBC have been accused of ripping off graduates by withdrawing its interest-free graduate overdrafts.
– All banks are still under the microscope for charging extortionate fees on their current accounts
– And even energy companies have been exposed for charging extra just because of where their customers live in a postcode lottery
So whatever your financial circumstances the chances are you could be in for a rough ride unless you stay one step ahead of the game. This is never truer than with insurance and in particular direct debit payments. MoneyExpert.com explains…
DD – Friend or Foe?
Normally paying by Direct Debit is a good thing. Take energy bills or mobile phone bills, for example. Customers are encouraged to pay by Direct Debit because providers know there’s a better chance of collecting payment for a bill in full. And that means we’re all incentivised to choose the DD option, normally with a discount.
Sadly the same cannot be said of insurance premiums. In fact, the reverse is true.
Direct debit danger
With the average comprehensive car insurance policy coming in at £806 last year, it’s no wonder that 18.5 million people opted for Direct Debit last year to pay for their car insurance.
It might seem to make sense to spread the cost – after all £806 is a hefty amount – and choosing Direct Debit means you don’t have to worry about a cash shortfall at the end of the month.
The problem is that if you pay by direct debit you’ll invariably end up paying more. Around one in twelve motor insurers do not charge extra for paying by direct debit and on average the extra amount charged was 22.7%. This means on the average motor insurance policy you could end up paying an extra £182 for the privilege of spreading the cost.
Rip off or Good cause?
Insurers say there’s a good reason for making you pay more for direct debit. If you haven’t paid in full up front then they take the view that they are essentially loaning you the cover. If your house was broken into for example and you had only paid your first month’s home contents cover then they would still have to pay out in full despite having only a twelfth of your money in the bank.
Beat the trap
Whether it’s a rip off or not it is possible to escape this extra charge, but you will have to search the market to find these companies.
In the past Virgin Money, Insure.co.uk and Norwich Union have avoided Direct Debit charges, but the only way to be sure is to check with your insurer when you discuss payment options.
The key to making a saving on insurance is to shop around. Get as many quotes as you can, or go online at MoneyExpert.com to compare a huge chunk of the market for you in seconds. Focus on the total cost of the quote including the direct debit charge.
It can still make sense to pay by direct debit if the total you are paying is competitive. Just because an insurer doesn’t charge for direct debit doesn’t mean they will be best value.
And if you really are dead set on paying monthly, why not try paying with a 0%purchase credit card, and set up a payment plan to pay the premium off before the zero per cent expires? It could be worth your while – click here to compare credit cards.
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