How to avoid monthly instalment interest charges on your insurance policies

08 September 2008 :

by compareandsave.com Editors

Yesterday we published a news story about the extra cost faced by those consumers who choose to pay for their annual car insurance premiums in monthly instalments (‘£624m bill for pay monthly car insurance customers’).

Many people choose to spread the cost of the insurance premiums over 12 months because they cannot afford to pay the lump sum in one go.

However, because the insurance company is effectively giving the customer a credit facility when they allow them to spread payments, it will charge the customer interest for the privilege. Unfortunately, the interest rates are quite high (above 20%) so the consumer ends up paying a substantial amount more for their insurance policy by paying monthly.

So, how can you avoid these interest charges?

A limited number of insurers don’t charge interest for paying by monthly instalments therefore one way would be to favour these insurers for your insurance products.

The possible flipside to this strategy is that the insurance policy may be more expensive than some of the others on the market and so you may be saving money in interest but you will be paying more for your policy anyway.

If, however, the policy is cheaper and doesn’t charge interest for paying monthly, you could be set to save a substantial amount of money using this method.

If you aren’t fortunate enough to find an insurance policy that is the right price and also payable monthly at no extra cost there are other ways you can spread the cost.

One way would be to get a 0% on purchases credit card with the longest interest-free period possible, pay for your insurance using this card and then pay the balance off in equal monthly instalments.

At the moment, the longest 0% offer on purchases comes with the Capital One Platinum credit card and lasts until September 2009.

Realistically speaking, if you got a credit card and managed to get its typical APR (around 15.9% on most credit cards on the market), it would still be cheaper to pay for your insurance using your credit card than pay the interest charged by your insurer.

Another alternative would be to raid your savings to pay for the lump sum and then replace the money monthly to your savings account instead of paying it monthly to the insurer. If you have a savings account paying even 7% interest, you will be paying a lot more out in interest charges to your insurer than you will be making on the same amount of money in your savings accounts. This means it would be more cost effective to use your savings to pay for the insurance and then pay yourself the money back over the course of the 12 months.

Whichever method you choose, be sure to make the quality of insurance cover your top priority and always choose the policy and method of payment which best suits your needs and circumstances.

Click the link for more information on the Capital One Platinum credit card.

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05:16 PM | Categories: Car Insurance, Insurance, General Hints & Tips, Home Insurance