Car insurance customers can save £144 by paying for their policy annually and upfront rather than in instalments every month. Experts at Money.co.uk found insurers “will charge you more” when you decide to pay monthly.
They say this is because “interest” is placed on top of the policy price which can see costs dramatically rise.
A spokesperson for the firm warned that the more expensive a premium is, the more expensive it will be to spread the costs over a monthly basis,
A spokesperson for Money.co.uk said: “For most people, paying for their insurance monthly is the most convenient and affordable option, especially for those with high premiums such as young drivers.
“However, most insurers will charge you more for opting for monthly payments, usually through the form of interest on your premium.
But these road users will then be forced to pay more over the year effectively punishing drivers with less disposable income.
Compare the Market says those that pay their agreement monthly will see an initial deposit added to their contract.
This deposit is usually 20 percent of the total annual amount which will then be paid back over the next 11 months.
Your monthly costs would be calculated by dividing the remaining cost by 11 and adding their remaining interest to it.
They warn that interest rates will vary between insurance providers as each has its own terms and conditions.
Previous analysis from MoneySuperMarket has revealed drivers may save more than £600 for paying for a policy upfront.
They have revealed drivers aged 18 pay an average of £1,441 a year under monthly policies compared to just £800 if paid upfront.
Drivers aged around 25 can secure £150 worth of savings by paying for their scheme in one instalment.
USwitch expert Kasey Connells says monthly policies are “not so simple” as it was simply not a case of splitting annual costs into 12 instalments.
She warns most insurers will conduct a credit check to ensure payments can be met with any negative credit scores likely to lead to higher payments.
She revealed paying upfront had some benefits such as a wider number of policies to ultimately choose from.
Ms Connells said: “The standard payment option offered by all insurers is to pay for your car insurance upfront for the full year, in one single payment.
“The main benefit of this approach is that you will have access to deals from more insurers, as some only offer annual payment plans.
“You’re also likely to find a cheaper price by paying upfront.
“The downside is that many drivers find it difficult to pay the full amount upfront – this is especially the case for young and inexperienced drivers, as their premiums can often cost thousands.”
Published at Thu, 10 Sep 2020 06:43:01 +0000