Many motorists prefer to spread the cost of their insurance over a year, but few realise their cover could become much more expensive.
Jason Wyer-Smith of Virgin Money, one of the few insurers that does not charge customers more to pay monthly, said: “It is totally unacceptable. The companies treat people who pay in this way as loan customers, but even so, charging more than 20% is indefensible. Even worse, some people don’t realise they are paying more.”
Argos is one of the worst offenders. It charges an annual percentage rate (APR) of 29.6% if you pay monthly by direct debit. AA Insurance applies an APR of 24.9%.
A married 30-year-old accountant living in London would pay AA Insurance an annual premium of £825.10 to insure himself and his wife for a Golf GTI if the car were kept on the street. If he paid monthly, it would cost an extra £101.11, bringing the total premium to £926.21.
Ian Crowder of AA Insurance said: “The charge levied covers administration, customer service, the cost of funding the loan and defaults.”
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Yet some insurers are able to charge much less. Research by Insuresupermarket, an online price-comparison service, shows that More Than charges the lowest APR at 13.7%. A number of firms charge less than 20%, including Egg, Direct Line and Tesco.
Jon Sellors at More Than said: “If you are allowing someone to pay by instalments you are in effect giving them credit, which costs money. But we are upfront about this and inform customers what the cost will be.”
But not everybody understands the extra cost.
Richard Mason at Insuresupermarket said: “Most motorists are being hit by these extra charges — we estimate 85% of people choose to pay monthly. But many won’t realise how much it is costing them to pay in instalments. The lowest premium may not work out as the cheapest option, so when comparing quotes it is important to look at the overall cost.”