As car insurance costs rocket there is a obvious desire by many to pay for their premium monthly rather than in one annual payment. However as the size of the annual premium rises so do the interest costs charged by many insurers for paying monthly. Most insurers now charge over 20% interest to spread the charge, whilst some are levying interest at an eyewatering 34%!
Young, new qualified and those in ‘higher risk groups', either though their driving record or type of vehicle to be insured, have seen premiums rise particularly sharply recently, and when they are struggling to find a significant premium the additional interest costs are particularly unwelcome.
MoneyMaxim are now advising customers to be innovative in their approach when looking to spread their payments, and not to immediately accept the monthly payment option offered by the insurers.
Mark Bower, Managing Director of MoneyMaxim said today ‘Whenever we talk to customers now we are highlighting to them the additional costs applying on monthly repayment programmes. We are particularly strong in providing insurance for young drivers, but with their average premium over £2000 the added interest costs when paying monthly can, for some, make insurance totally unaffordable.'
‘For those who can afford to pay in one go its clearly cheaper to do so, especially as savings rates are so low currently, but for those still wanting to spread the payments we are suggesting they consider getting a credit card offering an interest free period of a year. For the well organised who have planned ahead Tesco's and Sainsburys are both offering an interest free period of a year or more on purchases, whilst Nat West/RBS Group and HBOS have similar deals for existing current account customers. Obviously the customer needs to have applied for a card and received it before their premium is due. Full details of these cards can be found in our 0% purchase card comparison tables.
For others who have left it later they can still significantly cut their costs by using a card offering a 0% interest free balance transfer facility. By applying, and being accepted for a card they will know that they can fund the premium on an existing card, and switch it to the new card when the bill arrives. Obviously the credit limit will need to be large enough to support the premium. These cards do accrue a fee of up to 3.2% (although there are a number of offers currently in the market that can reduce this – see our 0% interest free balance transfer tables for full details) the fee on the average premium of £892 would be under £27, and on a young drivers policy under £75 – well over £300 less than the fees being levied by some insurers.
Sample interest rates offered to MoneyMaxim customers this week are detailed below, together with the total costs that would be applied to a average policy, and an average young drivers policy:
|Insurer||APR* Repayable over||Interest cost on an annual premium of £892**||Interest Cost on an annual premium of £2431***|
|Direct Line||20.4% 10 months||£72.30||£197.04|
|Endsleigh||34.70% 12 months||£114.63||£312.40|
|Swinton||32.10% 11 months||£145.24||£395.83|
* Annual Percentage Rate ** Average Premium – AA British Insurance Premium Index – All Policies (April 2011) ** Average Premium – AA British Insurance Premium Index – Drivers aged 17 – 23 (April 2011)