Paying monthly will cost you £73 in car insurance rip-off
INSURANCE companies are charging drivers an extra £73 a year just for choosing to pay monthly, a report has found.
Spiralling costs mean many cannot afford to pay their entire annual premium upfront. Many motorists therefore decide to spread the burden of their car insurance by paying in monthly instalments.
But insurance companies are raking in an extra £1.5billion a year from drivers who choose the monthly option, according to price comparison website Money Supermarket. The tactic is lucrative for insurers, with the number of motorists opting to pay monthly growing every year as premiums rise.
Worst affected are younger drivers who have to pay more and are generally less able to afford it in one lump sum.
Based on an analysis of almost 4million car insurance quotes, 45.5 per cent of people pay by monthly instalments. Drivers who pay monthly are charged £6 on average, compared with £549 for those who pay annually. This equates to a difference of £73 – 13.3 per cent.
Kevin Pratt, consumer affairs expert at Money Supermarket, said cash-strapped customers are an easy target.
He added: ‘Paying for your insurance in one lump sum is a big ask, given that average premiums are well north of £500, so it’s no wonder that millions of people opt to pay monthly. But insurance companies effectively charge interest when you take that route – so typically slapping another £73 onto the cost.’
Consumer campaigners last night said customers are being ‘ripped off’.
One expert said motorists who do not have enough money in their bank account to pay in one go would be better off putting their car insurance on a lowinterest credit card and repaying it as quickly as possible.
Guy Anker from Money Saving Expert said: ‘This is another trick used by sneaky insurers to squeeze more money out of their customers. Anyone who opts to pay monthly is choosing to get ripped off.’
A separate report from Money Saving Expert published in August discovered that Kwik Fit was charging the equivalent of an 101 per cent annual interest rate for customers who paid by monthly direct debit.
Kwik Fit was approached for comment but did not respond.
The insurance industry has faced a barrage of criticism for its treatment of customers. For years they have been accused of hoodwinking loyal customers by quietly increasing premiums and failing to print last year’s premium on renewal letters. Experts have estimated this has also allowed firms to generate an extra £1billion a year.
In August the Financial Conduct Authority ordered insurers to include last year’s quote on letters to empower customers to shop around for a better deal if their premium went up sharply – a major victory for Money Mail, which campaigned against the renewal racket.