Monthly car insurance payments means high credit charges

Tue, 13 Sep 2005

Car insurance can be expensive especially if you pay for it in one lump sum payment. Premiums for comprehensive cover can cost from £500 to £700 and most insurers give the option of paying by direct debit over a period of ten or twelve months. This may seem cost effective and be easier on your pocket but in fact it is often more expensive.

Insurance companies will charge a fee for the privilege of spreading the cost of the premiums. The charge will be in the form of an interest charge on the monthly payments and this will often cost more than the saving you may have initially made by getting a cheap quote.

Insurers generally charge approximately 20 per cent to pay on a monthly basis. The insurance broker, the AA charge 11.9 per cent over an 11 month period, whereas Norwich Union charge 18.9 per cent over a ten month period.

There are some insurers who charge a higher rate for people who want to spread the cost of payments such as Provident, who charge 37.12 per cent over a period of nine months.

The price comparison website www.moneyexpert.com calculated that for a fully comprehensive policy with a premium of £700, the cost of paying by direct debit would be more than £100 if the APR was 20 per cent. If the provider was charging the higher amount of 37.1 per cent the cost would be £250.

Moneyexpert.com advises that the best way of paying your premium is up front, if you can afford to do so. Otherwise you will be paying over the odds by spreading the cost over the year. They also suggest that if you have a credit card to make the full payment on the credit card. These sometimes have a cheaper APR than the insurance provider. The best credit card deal will be one with a zero per cent introductory offer, so you could pay your premium this way. According to Moneynet.com for those who can’t pay in one lump sum, there are some insurers who do not charge for paying by direct debit. These insurers are Age Concern, Virgin, Bluesure and Zurich.
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