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.