With the average car insurance premiums costing around £800, its no surprise that people opt to use direct debit payments as opposed to paying up front for the full years premium.
In most cases direct debit is the preferred option of payment, with mobile phone and household utility bills being excellent examples.
With such scenarios, companies know that there is an increased likelihood that ultimately, they will collect payment, and this is sometimes passed on in the form of discounts for the consumer.
However, with car insurance, although direct debit is often the preferred method of payment (with 18.5 million Britons choosing it last year); it isnt always the most cost effective.
Car insurers have revealed that when a motorist pays their premiums by direct debit, they are essentially being loaned the money, therefore they are charged interest.
On average, the interest charged on car insurance is 22.7% which roughly equates to an extra £182 a year.
With 11 out of 12 insurers levying this charge it may therefore be worthwhile thinking twice before paying by direct debit.
The obvious way to avoid shelling out the extra direct debit charge is to simply pay in full, up front. This however, isnt always possible.
Certain insurers, such as Virgin Money, Insure.co.uk and Norwich Union do not charge extra for direct debt payments. Its always best to check with any potential insurers prior to taking out any insurance policy.
In some cases, the car insurance deal in question can still be competitive even with a direct debt charge.
As with any financial product, its always best to thoroughly compare the market before signing on the dotted line.
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Car Insurance: Think Twice Before Direct Debiting your Car Insurance