Martin Lewis revealed those who request a payment holiday may end up paying more than usual because interest will continue to be charged on their policies. The Money Saving Expert specialist said “hideous interest” rates would still apply which could see overall costs increase.
Speaking on the Martin Lewis Money Show, he urged motorists to not take out a payment holiday unless they were in a dire situation.
He said: “You can get a payment holiday but remember this is for monthly payments on insurance.
“Technically what happens is they pay for you and loan you the money to pay by the month, usually with a hideous interest rate.
“That interest rate will keep racking up so don’t take this payment holiday unless you really really need the cash flow.”
The FCA says: “We also expect firms to consider reviewing any interest rates associated with instalments to determine whether they are consistent with the obligation to treat customers fairly in the light of the exceptional circumstances arising out of coronavirus.”
Mr Lewis confirmed payment holidays will be made available from Monday after a slight delay to the scheme.
He revealed car insurance companies will first review a customer’s scheme to see where they could save on an agreement before going ahead with the payment holiday.
This could see firms reduce the level of cover offered from fully comprehensive agreements to a third party, fire and theft policy.
Martin Lewis has confirmed motorists average yearly mileage will also be reviewed as this is likely to be dramatically lower than initial estimates.
If a deferral is needed, the Financial Conduct Authority (FCA) says this should be for a period of between one and three months.
The FCA has confirmed payment holidays can be increased beyond three months at the discretion of the car insurance firm if this is considered to be in the interests of the customer.
Payment holidays will only be available to customers who have been affected financially by the coronavirus pandemic.
Car insurance firms will not need to reach out to customers so motorists must enquire to be considered for the scheme.
The FCA’s guidelines also say firms should waive cancellation fees and any charges usually applied for adjusting policies.
Sheldon Mills, interim Executive Director of Strategy and Competition at the FCA praised many firms who had already offered support measures to customers before guidelines were in place.
She said: “As with other areas of finance, we have worked quickly to draw up measures to help policyholders in financial difficulty because of coronavirus.
“Many firms in the insurance industry have already taken some of the actions we are suggesting here to support customers.
“Such as premium reductions, discounts, waiving fees, and payment deferrals. The measures confirmed today will provide urgent support to those that need it.”
Published at Sun, 17 May 2020 09:01:00 +0000