Debt Camel

Answers to questions about debts and credit ratings - in plain English!

  • Home
  • Coronavirus
  • Refunds ▾
    • Amigo – possible Scheme?
    • Guarantor loans
    • Doorstep loan refunds
    • Catalogues, credit cards & overdrafts
    • Refunds from large high cost loans
    • Payday loan refunds
  • Debt problems ▾
    • Priority debts
    • Sold to a debt collector
    • Old debts
    • CCJs
    • Bailiffs
  • Debt solutions ▾
    • Debt Management Plans
    • Bankruptcy
    • Debt Relief Orders
    • IVAs
    • Compare 2 solutions
  • Money ▾
    • Budgeting & Saving
    • Credit ratings
    • Mortgages
  • Latest ▾
    • All posts
    • Debt news & policy
    • A reader asks…
  • About ▾
    • About Debt Camel
    • Media
    • Contact

Avoid insurance rip-offs if you pay monthly

MoneySupermarket have found that on average people are being charged an extra £73 to pay their car insurance monthly. And as more than 45% of people do this.

car and house insurance rip offs if you pay monthly premiums

Do people realise the extra cost?

The Financial Conduct Authority’s Thematic Review of Provision of premium finance to retail general insurance customers may  sound dull – but read on if you are one of the millions who pay for your car and household insurance monthly.

The FCA report concluded that many people may be being misled about the true cost they are paying.

Many people don’t realise that if they decide to pay monthly this is a form of credit. You are borrowing the full annual premium, repaying it in monthly installments and usually being charged interest on this borrowing.

About half of all UK car and household insurance is purchased online. The FCA review involved 13 insurers and 30 brokers/price comparison websites. It looked at their websites, investigating the “customer journey” up to the point where the customer enters payment details.

The FCA wanted to see if the websites give the right information to enable the customers to make a good decision. This information needs to be given early enough in the process, not right at the end when you have already decided which insurer to use.

Linda Woodall from the FCA said:

“Consumers should expect clear information about the payment options available to them. Regardless of whether people choose to pay upfront or in instalments, it’s important that they can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal.”

The results of the review

The FCA found that:

  • people were sometimes only told what the monthly payments would be, not the total cost of paying this way;
  • sometimes the monthly payment was emphasised as this makes the difference look small, and the total cost of paying this was was in much smaller print;
  • sometimes interest rates weren’t quoted at all;
  • a wide variety of APRs are charged, from zero to over 75%, as this graph shows:

From 0 to over 75% - the wide range of interest rates charged for paying insurance monthly

Wow – 75% !

Indeed. And most firms are charging over 26%. This is a very profitable sideline for the insurers and the lenders.

Can you avoid this rip-off?

The simplest way is to not pay monthly but to pay the whole amount at the start. If you can afford to do this, it’s going to save you money.

But many people can’t afford to do this. It’s an example of the “poverty premium” – a situation where the well-off get things cheaper than those who are struggling.

If you have to pay monthly, the key thing is to look out for the total amount that you will be paying over the year. Use that to decide whether to go with insurer X or insurer Y.

You might be thinking that it would be cheaper to put the annual amount on your credit card, where you are “only” paying 21% interest. Well it might be… but only if you pay off the whole amount during the year. Otherwise you will still be paying this year’s car insurance next year and the year after etc and the total cost will end up even higher.

More Debt Camel articles:

88 ways to save money – which will help you?

Are your debts keeping you awake at night?

Are your debts keeping you awake at night?

The minimum credit card payment trap

May 14, 2015 Author: Sara Williams Tagged With: Budgeting & Saving, car

Comments

  1. Beckie says

    February 1, 2017 at 8:08 am

    About 10months ago I got excepted by The car finance company also we went through my affordable monthly payments £200 a month but trade centre upped it ..I then had to pick a dealers garage to choose my car which I picked trade centre Wales , I suffer bad from thyroid and I’m on a very high dosage. Basically i was passed to about 3/4 different trade workers filling & signing sheet of paper I was in there at least 3hours plus I had my son who was being very naughty so wasn’t paying much attention what I was signing.It was only until I started paying monthly i realise how stupid I’d been my monthly payments for a 09 fiesta is £248 plus I told told I also had to pay £50 on top aswel for premium credit..I’ve been late some payments and contacted The finance company and asked could I spead my payment out and was told no. I’m a single mother of 3 children and it’s having a massive financial effect on .

    Reply
    • Sara (Debt Camel) says

      February 1, 2017 at 8:45 am

      Hi Beckie,

      I think you need to go to your local Citizens Advice and ask for their assitence to look at all your options. If your credit record was poor, there is an argument the lending was irresponsible because you could not afford the repayments. CAB may be able to help you make this complaint, which if successful could result in the interest being reduced or taken off what you owe.

      Reply

Leave a Reply Cancel reply

You have to agree to the comment policy.

Subscribe to Debt Camel

Join the 7,000 people who receive an email when a new article is published:

Recent articles

Latest news round-up:  January 17th

  • Is Amigo allowed to delay paying refunds? Does it have a DISP waiver?
  • Lessons from Amigo – FOS complaint handling needs to be faster
  • Amigo’s Scheme – who’s next? Implications for the bad credit market

Help with your debts

Recommended places for debt advice

About Debt Camel

This is the personal website of Sara Williams.

More about Debt Camel.
Privacy policy
Comments Policy
Debt Camel on Twitter

 

Copyright © Debt Camel 2020