Motorists pay 22% extra for direct debit
by Gill Montia
Story link: Motorists pay 22% extra for direct debit
MoneyExpert.com, the price comparison website, is advising those purchasing car insurance by monthly instalments to check out the cost of spreading their payment across a year.
Car insurance premiums are currently at an all-time high, with the average costs in some categories reaching £1,000 a year.
As a result, many motorists are choosing to pay their premiums by Direct Debit but in doing so they can be adding 22%, to the cost of their car insurance.
Insurance companies operate by viewing the premium that is not paid for in advance, as a loan.
High rates of interest can be charged because no mainstream lender would consider a loan of £1,000 worthy of a competitive interest rate.
MoneyExpert suggests motorists investigate paying for their motor insurance using a credit card that offers a long interest-free period, whilst remembering to pay off the balance before the introductory offer runs out.
Even then, most credit cards offer interest rates below 22%, which is the average charged by motor insurance companies.
According to MoneyExpert, only one in 12 motor insurers do not make a charge for spreading the cost of a policy using direct debit.
Consequently it is important to establish the exact terms offered for paying by instalments when comparing quotes.