An investigation by Auto Express has discovered serious price differences when paying for car insurance in monthly instalments compared to a one-off annual payment.
The car magazine found that for some insurance companies, the difference can be as much as 20 per cent, due to high interest rates charged on monthly payments.
Based on quotes for a 42-year-old living in Banbury, driving a 16-registration Ford Focus, Auto Express found customers would be charged £49.58 more by Aviva if they chose to pay over a 12-month period instead of paying a lump sum. For Endsleigh insurance, the cost increased by a staggering £246 when paying monthly.
It means that those customers who cannot afford the large one-off payment, and instead need to pay smaller amounts every month, will actually end up worse-off than those who can pay for it in one go.
One possible way around this issue could be to try and secure a zero-interest credit card, and use it to purchase car insurance as an annual payment, paying off the credit card payments each month instead.
A spokesperson for the ABI said: “Customers paying for their car insurance in monthly instalments are effectively taking out a loan for the cost of the cover and paying it back over 12 months, which means they incur interest and generally pay a higher total bill.”