This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
Normally, paying by Direct Debit is a good thing, because it allows you to benefit from prompt-payment discounts worth around £200 a year. However, according to a new survey, paying for home and car insurance by Direct Debit adds an extra £2.7 billion to our annual bills. MoneyExpert found that we Brits use Direct Debit to pay for over 19½ million home contents policies and 18½ million motor insurance policies. The problem is that almost half (49%) of home contents policies and five out of six (83%) motor policies charge interest to customers who pay their annual premium in instalments. What's more, these annual interest rates are incredibly high, averaging over 21% for motor insurance and 19% for home contents cover. In fact, 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 4½% 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. To find out if your insurance company is lending you your annual premium and charging interest on it, examine your policy documents to see if an APR (Annual Percentage Rate) is shown. If the APR is more than 0%, paying by instalments is costing you money. Indeed, the extra interest charge could wipe out any savings you've made from shopping around for a lower premium. For example, according to the AA, the average annual premium for fully comprehensive car insurance is £762. Paying by Direct Debit at 21% APR would add an extra £162 a year to this cost, bumping up the cost to £924. For home contents insurance, paying by Direct Debit could add an average of £28 to the typical annual premium of £150. Ouch! Rather than pay over the odds for expensive instalment plans, my advice would be to pay for your insurance premiums by putting aside some money each month in a high-interest savings account. Then again, if you don't have enough savings, you can still enjoy a long-term interest-free loan to pay for insurance premiums and other major purchases. All you need to do is apply for a Best Buy "0% on new purchases" credit card, which provides you with a lengthy introductory interest-free period. For the record, the table-topping plastic in this category comes from Sainsbury's Bank, which offers 0% on new spending for ten months. Thus, applying for one of these cool cards now will give you an interest-free breather which lasts well into 2007. More: Let the Fool help you to find better 0% credit cards, insurance policies and savings accounts!
