Insurance can cost more if paid in monthly instalments

When people purchase car insurance or home insurance, they could find that choosing to pay in monthly instalments results in a higher cost than paying it all in one go.

The Financial Conduct Authority (FCA) has scathingly criticised the insurance industry, which is worth £18bn annually, in a recent publication. Their criticism is mainly based on the fact that when insurance is purchased online, the information about the cost of paying it in monthly instalments is not clear enough, meaning many customers are not fully aware of the costs they face.

This leads to many customers being charged significantly higher amounts than others, with almost 50 per cent of UK households choosing to pay their insurance premiums in monthly instalments. It was also common for broker websites to not display their additional fees.

One insurance company actually charged an interest rate of more than 75 per cent for monthly payment plans, which can boost insurance company profits considerably. 19 companies (out of the 34 who actually displayed their APR online) charged interest at rates between 26 per cent and 40 per cent for customers paying monthly.

As a result of failing to fully disclose all costs, some insurance companies may now face legal action.

“Consumers should expect clear information about the payment options available to them,” said Linda Woodall, of the FCA.

“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.”

Related Articles