Extra costs for direct debit insurance payments, research reveals

Mon, 20 Mar 2006

Paying for insurance by direct debit can end up costing consumers more in the long-term, reveals new research.

Direct debit payments for motor and home contents insurance cover can add an extra of £2.7 billion to annual UK household bills, suggests the financial comparison website MoneyExpert.

The website found that over 80 per cent of motor insurance policies and almost 50 per cent of home contents insurance policies charge interest on their bills for providing customers with the privilege of being able to spread the cost via direct debit.

The interest charged works out at an average of 21.27 per cent on motor insurance and 19.07 per cent for home contents insurance cover.

Tim Berry, director at MoneyExpert suggests that although direct debit might seem like a good option to help consumers budget their finances, in reality the insurance companies are actually providing a high interest loan to customers opting to pay via this method.

"That means the convenience of spreading your payments comes with a charge which can wipe out any savings they may have earned through researching the market for the best deal," he explains.

He went on to suggest that in some cases consumers might be better advised to pay off their bill in a lump sum or even use a credit card offering lower interest rates than the insurance provider.

The research found that more than 19.5 million home insurance customers and 18.5 million motor insurance policy holders are currently paying via direct debit.


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