Paying car insurance by monthly instalments can be a good way of spreading the cost, but it can also mean you pay more for your cover as a result, warns MoneyExpert.com.
There are many advantages to paying monthly, such as not having to come up with the total premium in one go, the peace of mind that comes with knowing your car is covered, and payments are made automatically with Direct Debit, so payments are not missed and budgeting is easier, but the privilege of doing so can considerably increase your premium. Car insurance
premiums have risen to an all-time high, with average costs reaching as much as £1,000 a year, so it is no great surprise that a lot of people benefit from paying their premiums by Direct Debit, but this could add 22%, as much as £200, to the cost of your car insurance.
MoneyExpert.com suggests other ways to avoid paying the premium upfront whilst also avoiding the extra charge for the convenience of paying it with monthly instalments, which the insurance company view as a loan and treat it as such by enforcing high interest charges. A normal loan would not be beneficial because for amounts as small as £1,000, lenders often charge a high rate of interest.
Paying with a credit card that offers a long interest-free period so you can pay off the balance before the special offer period runs out. Failing that, most credit cards have lower interest rates than the 22% average that insurance companies charge, so drivers could still save money that way.
“Only around one in 12 motor insurers do not charge for the convenience of direct debit”, says MoneyExpert.com, so it is worth shopping around and asking your insurer what they charge for the privilege of paying in monthly installments.
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