DRIVERS who spread the cost of their car insurance are being charged hundreds of pounds more to pay monthly.
An investigation by The Sun reveals how companies are slapping almost 19 per cent onto the upfront cost for those who can’t afford to pay in one go.
For the most expensive policy we found, the driver was charged a whopping £365 extra to pay monthly.
Car insurance is cheaper when you pay one annual payment, but drivers who don’t have the money are hit by extra fees and often pricey interest.
We compared the cost of car insurance for 15 different suppliers, based on a 35-year-old male living in London.
He has a 2009 VW Polo, ten year’s worth of no claims discount and wanted fully comprehensive cover.
How to compare car insurance
THAT time of year when your car insurance needs to be renewed can often be financially stressful.
But before you go renewing with your current provider, make sure you compare prices to ensure you’re on the best deal.
They’ll want to know all about your car, including the registration and when you bought it.
Don’t panic if you haven’t purchased it yet, you can still compare prices if you’re undecided on buying a vehicle.
You’ll also need to give some personal details about yourself and your driving history.
Once you’re done, the websites will then show you the quotes you can get some different providers.
If you find a better price, go back to your insurer and tell them what’s being offered elsewhere.
While no means a guarantee way to lower the price they’re offering you, haggling doesn’t cost a penny and can prove successful.
If they can’t lower their price, then you can leave them and go with the cheaper deal.
Remember, it’s a legal requirement to have car insurance and going without it could land you with a £300 fine, six penalty points on your licence and even a criminal conviction.
In one case, he was charged an extra 18.8 per cent by Insure Your Motor to pay monthly instead of one annual payment.
Other insurers, including Complete Car, Insure Wiser and Right Choice, slapped between 15.9 and 18.7 per cent onto the total cost.
On the lower end of the scale, the difference was still 7.5 per cent when choosing a monthly package over an annual payment with More Than.
The most expensive package we found was £3,340 for the total amount you’d be paying through monthly payments with Endsleigh.
This made a £365 difference compared to the annual price of £2,975.
While these figures are shocking enough, we spoke to consumer expert James Daley of Fairer Finance who told us some companies can charge as much as 48 per cent APR.
Fairer Finance found A-Choice charging 47.8 per cent, 1st Central charging 38.5 per cent and Swinton charging 35.6 per cent.
How to avoid paying extra on your car insurance
PAYING your car insurance can be a pain in the wallet but thankfully there are things you can do to manage costs.
James Daley of Fair Finance spoke to The Sun about how to deal with financial strain.
- Purchase cards with zero per cent interest: There are loads of zero per cent purchase cards with no interest to pay, in some cases lasting over two years. These can be used to pay for the annual cost of your policy without the expensive interest being charged by insurance companies. However, you will need to pay off your debt by the end of the pre-agreed period, otherwise interest will be added. Always make sure you have the financial means to pay off the card in the timeframe you’ve agreed.
- Set up a savings account: If you budget correctly, setting up a savings account that you can top up throughout the year could be a great way to prepare for next year’s renewal date. Always shop around for a savings account with the best interest rate so you can get more for your money. You can use comparison site Compare the Market to look for the best account.
- Find an insurer that doesn’t charge: James highlighted the AvivaPlus for doing just this. Customers who take out a new quote with the insurer won’t play any interest for paying in monthly instalments. There’s also no annual contract, so you can leave at any point. However, this doesn’t mean that other insurers can’t offer you a better deal so always shop around for the best price.
Customers usually pay a 20 per cent deposit when taking out a new monthly policy, with the rest settled in instalments of either nine, ten or 11 months.
As you’re effectively taking out a loan for the year, most insurers will perform a background check to determine an APR rate.
This is often a variable limit, although some insurers do have fixed rates.
Other factors that could impact the interest you’ll be charged include payment dates, number of payments, and size of the initial deposit.
James said: “It’s well worth trying to avoid these charges as they can add hundreds of pounds to the cost of your insurance.
“I’ve never understood why insurers charge at all for paying monthly.
“Why can’t they just let you pay as you go – just like most other services?”
Consumer expert Martyn James of Resolver added: “Just because ‘it’s always been this way’ doesn’t mean it’s fair – and it’s time for this whole method of payment to be investigated.”
A spokesperson for the Association of British Insurers said all insurers must follow regulations from the Financial Conduct Authority and clearly state any additional charges.
The ABI continued: “Motor insurance is fiercely competitive, so motorists should shop around for the best deal for their needs.”
Tesco Bank said they regularly monitor how their prices compare to their competitors.
While it was a similar comment from Post Office Money who said they have processes in place to make sure their charges are appropriate.
We’ve yet to hear back from More Than, eSure, Lloyds Banking Group, O2, RAC, Endsleigh, Insure Wiser, Insure Your Motor, Complete Car and Right Choice.
We’ve also contacted A-Choice, 1st Central and Swinton about the Fairer Finance research.