Millions of people pay for products and services by Direct Debit. Whether it’s to pay off your phone bill or to ensure you don’t miss a gas or electricity bill, Direct Debit is often seen by providers as a benefit and therefore offered to customers at a discount. You don’t have to worry about missing a payment, and providers get paid on time. Everyone wins.
But things are different in the world of insurance. Research by MoneyExpert shows that you could end up paying over £180 for the privilege of paying monthly for your insurance premium.
This is because insurers often charge you extra to pay monthly. Why? Insurers say they are allowing customers to spread the risk of being covered for a year even though they haven’t received full payment for your premium until the year is up. So 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.
What does this mean for you? Read on to find out…
Checking the figures
MoneyExpert’s latest figures show 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. That means that on a typical comprehensive policy of around £750, you’ll have to pay an extra £170.25 just to pay monthly.
However, not all insurers who charge are so punitive in their costs. Some will charge you as little as 7 per cent APR, which for the benefits of paying monthly might be worth considering. However others may charge as much as 37 per cent, meaning that on that same policy of £750 you’ll end up paying a total of £1,027 if you choose the Direct Debit route.
Don’t feel the strain
Given how high annual car insurance premiums are now it’s not a surprise that lots of drivers decide to pay monthly. It spreads the cost and avoids making a huge hole in your finances.
But if the examples given show anything, it’s that such a decision comes at a significant expense.
Motorists however can still get great deals by shopping around and you should always review your insurance every year.
But as you do the shopping around remember to make sure that your savings are not going to be swallowed up by the extra cost of paying by direct debit.
Paying upfront for your insurance may sound daunting but there are ways to pay without incurring huge charges. For example, if you were to put the cost onto your credit card the APR charged will usually be cheaper than the average 22.7 per cent demanded by insurers.
And if you’re about to get a zero per cent introductory rate on a card then you needn’t pay any interest on the cost at all.
You have to bear in mind that insurance isn’t something to take lightly. You need to get the right product for you, not just the cheapest. If the policy you want charges extra for direct debit, you might still be able to make savings by going online. MoneyExpert research suggests that insurance premiums are around 35% cheaper online.
To compare car insurance, click here.