In my Money Saving March post, Don’t Pay By Direct Debit from earlier today, I mentioned the cost associated with paying for your car and home insurance with Direct Debits. The insurance companies justify this cost by seeing it as a loan to the customer for paying the insurance back in instalments.
MoneyExpert found rates as high as 37% APR for motor policies, and 35% APR for home contents cover. Given that the Bank of England’s base rate is just 4Â½% a year at present, spreading the cost of your policy over a year is usually an expensive mistake. Hence, by paying your insurance premium in instalments, you are, in effect, taking out a very expensive personal loan.
Their advice is to contribute monthly to a high-interest savings account, or to use a credit card that offers 0% on new purchases.