Drivers have been warned that opting for monthly car insurance payments could end up costing them an extra £300 per year. A recent study by Which? found that customers who pay for their policies monthly can pay as much as £309 more annually compared to those who pay for their insurance in one lump sum. The research, based on data from comparison site Go Compare, revealed that the average annual cost for monthly payments was £892, while the cost for an annual payment was £583. The price gap between monthly and annual payments has also been increasing over time.
Why the price gap is increasing
According to Which?, the increasing price gap between monthly and annual payments can be attributed to several factors. Firstly, younger drivers, who typically pay higher insurance premiums, are more likely to opt for monthly payments. Additionally, car insurance providers charge interest rates of more than 30% for monthly payments because they are effectively loaning the full cost of the insurance to the customer. This practice disproportionately affects those who cannot afford to pay for their insurance in one go.
Call for action from the Financial Conduct Authority
Which? is calling on the Financial Conduct Authority (FCA) to take action against insurance firms that charge excessively high interest rates for monthly payments. The consumer rights group wants the FCA to publish regular analysis of insurance firms' interest rates, naming and shaming those with the highest rates. It also wants the FCA to assess the cost to firms of providing premium financing and to take action against any firms that are charging excessive rates. The FCA has previously warned insurance firms about high interest rates and expects them to provide fair value to consumers.
Other ways to save on car insurance
There are several other strategies that drivers can use to reduce their car insurance costs. One option is to add a named driver to the policy, which can result in significant savings. Renewing car insurance at the right time, ideally 29 days before the new policy starts, can also lead to savings of up to £200. For those who don't drive frequently, a pay-per-mile policy could be a cost-effective solution. Working with a car insurance broker may also help find the cheapest policy, although it's important to be aware that brokers may charge a commission.
Overall, drivers are being advised to carefully consider their payment options for car insurance and explore alternative strategies to reduce costs and find the best value for their money.
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