Pay monthly car insurance customers stung with £300 penalty
Drivers paying their insurance on a monthly basis are being charged £300 more than those who pay annually, according to new research.
The average annual cost of monthly payments was £892, while the cost of paying annually in one go was £583, Which? said.
Younger motorists, who often pay the highest premiums, may be more likely to pay monthly, the consumer group added.
To get a better sense of how much drivers are likely to pay for their car insurance, in November, Which? analysed the cheapest 15 deals available to three real people via a comparison website. These were a GP living in Kent (59 year-old), a journalist living in London (39-year-old) and a leisure-centre worker living in Warwickshire (18 year-old).
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The research found that the 18-year-old faced the highest premiums and largest range of APRs (from 20.50% to 36.33%) compared with 20.90%-30.12% for the 39-year-old.
APR is a measure that calculates what percentage of the premium a customer will be charged for paying the insurance monthly rather than all in one lump sum payment.
The average extra cost for paying monthly for the 18-year-old was £459, but £41 for the 59-year-old and £82 for the 39-year-old.
This follows research from the Financial Conduct Authority (FCA), which found that a third (33%) of insurance customers overall paid monthly in 2022, but that more than half of consumers with low financial resilience paid for their motor insurance through monthly instalments.
Rocio Concha, Which? director of policy and advocacy, said: “Car insurance is a legal requirement for motorists – and yet those who can’t afford to pay in one go annually are often being penalised through unjustifiably high interest rates on their monthly repayments.
“That isn’t right – and it’s now up to the financial regulator to outline an action plan to tackle the unfair costs of paying monthly for insurance.
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“The FCA must monitor the issue closely, publishing an analysis every six months of firms’ rates, naming and shaming the worst providers.
“The regulator should also assess how much it costs firms to provide premium credit and shouldn’t hesitate to take action against providers charging monthly customers excessive interest rates.”
In the third quarter of 2023, the average price of motor insurance was a record £561, an increase of 29% compared to the same time in 2022, according to recent figures from the Association of British Insurers (ABI).
A spokesperson for the ABI said: “Our members are acutely aware of the pressures many households are currently facing and the impact recent increases in premiums – due to significant cost pressures outside of their control – are having on motorists.
“Paying premiums by monthly instalments is one option motorists have to manage their budgets.
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