8th July 2014
People who choose to pay their car insurance in monthly installments, rather than annually, are being charged annual interest rates of as high as 90%, according to new research by the consumer group, Fairer Finance.
Of the UK’s 40 largest car insurance brands, 34 allow you to pay in monthly installments, with just one of those, First Direct, charging no interest for the privilege. Of the other 34, interest rates range from 1.25% with NFU Mutual, up to as much as 90% with Kwik-Fit.
While Kwik-Fit in fact charges an interest rate of 19%, it has a fee of £35 to arrange the credit agreement which is what pushes up the APR. For those people with low premiums, the interest and charges can add over a third to the total cost of the car insurance.
More than one in three insurers also automatically opt people into paying monthly – rather than allowing them to actively make a choice.
Fairer Finance says that fourteen of the 34 largest insurers who allow customers to pay in installments automatically select the option to pay monthly when you’re referred from a comparison site – even if you’ve told the comparison site that your preference is to pay annually.
The average interest rate across all 34 insurers in the scenario run by Fairer Finance was 29.7%.
James Daley, managing director of Fairer Finance, says: “Given that the cost of car insurance can run to hundreds, and sometimes thousands of pounds a year, it’s only fair that people are given the option to pay in installments. If insurers feel they have to charge extra for this, they need to play fair and keep their fees and interest proportionate and reasonable.
“The fact that so many insurers are automatically opting customers into paying monthly is even worse. While some may have no choice but to pay in installments, people need to be given the chance to pause and understand the extra cost – not simply bundled into a deal which is going to potentially cost them hundreds of pounds more.”
The brands that automatically opted customers into paying in monthly installments were 1st Central, the AA, Co-operative Insurance, Endsleigh, Halifax, Lloyds, Marks & Spencer, More Than, Post Office, Prudential, RAC, RIAS, Sainsbury’s Bank, Zurich.
Fairer Finance mystery shopped 40 of the UK’s largest insurance brands at the end of June 2014.