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Is paying monthly for car and home insurance costing you a fortune?

Policyholders hit with hundreds in extra fees for paying in instalments

Almost 20 million people who pay monthly for car and home insurance are stuck in a ‘vicious cycle’, where the poorest households in the UK pay the highest costs for cover, according to research from a leading price comparison site.

A study carried out by Go Compare found that drivers are paying an extra £144 a year, on average, due to paying monthly for their car insurance, while homeowners and tenants are hit with average annual additional costs of £113 for home cover.

Worse still, the price comparison site found that ‘almost half’ (47%) of drivers from lower income households pay monthly for their car insurance, compared to just 29% of those from the highest earners’. Similarly, more than half of those paying monthly for home insurance come from low income households, compared a third (35%) from the highest earning groups.

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Why do monthly payers get hit with higher premiums?

Paying for your insurance on a monthly basis allows people to spread the costs of cover over the course of a year.

However, most insurers will charge you for the privilege of doing so – and interest rates can be as high as 35%, according to our analysis of insurers. RAC charges 29.99% APR, Zurich charges 33% APR and Swinton charges 35.6% for car insurance.

Meanwhile, Tesco Bank and Bradford and Bingley charge 29.8% for home insurance instalments, and Endsleigh charges a whopping 44.1%.

Go Compare hired Dr Joe Gladstone, academic researcher in consumer behaviour at University College London, to analyse the results of its research. He said that people experiencing financial distress are ‘far less likely to engage with their financial matters, read their bills or shop-around.  As a result, paying monthly for insurance can lead to a cycle of paying more.’

A third of people who pay for insurance on a monthly basis don’t shop around for the best deal.

Do all insurers charge interest for instalments?

The good news is that if you want to pay monthly, there are plenty of insurers that won’t hit you with interest for choosing to do so. This is more common in the home insurance market than the car insurance market.

For example, NFU Mutual and Age UK are two of the few who don’t charge interest for car insurance monthly payments. But plenty of home insurers are interest-free – including many major high street banks, as well as NFU Mutual and Age UK.

You can see the charges for home insurance in our guide, and car insurance fees here.

How to keep the cost of insurance down

Paying your insurance premium as one lump sum can help cut costs. But what if you need to spread the cost over 12 months? It could be worth taking out a 0%-on-purchases credit card, paying for cover all in one go and then setting up a direct debit to spread the cost.

Most insurers won’t charge you for paying by credit card – but some do. You could face fees of around 1.5%.

As always with car and home insurance, the surefire way to secure the best deal is to fight back against the premium you’re quoted when it’s time to renew and shop around for the best deal. Use a price comparison website or two to get new quotes, then challenge your current insurer to match them. If they refuse, move your business elsewhere.

Find out more: how to get cheap car insurance

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