James Daley

By James Daley

Paying for your car insurance in monthly installments can be a lifeline. If you're young, it's possible that your insurance bill runs to thousands of pounds a year - at a time in your life where you're least likely to have a few thousand lying around in your bank account. But even for those of us where the cost is more modest, it can be tricky to find the spare cash to pay for your insurance all in one go.

The insurance industry has a habit of taking advantage of this. New research from Fairer Finance has found that the average insurer charges just under 30% interest for the privilege of paying by the month - interest rates that are normally reserved for borrowers with poor credit histories. At the worst end of the scale, Kwik-Fit charges as much as 90% APR.

The high headline rate perhaps paints a worse picture than the reality with Kwik-Fit. In fact, it charges around 19%, and then adds a fixed credit arrangement fee of £35 on top. With this model, the cheaper your policy, the higher the annual interest rate will be. Nevertheless, it's hard not to feel that it's fees are out of proportion. Whether we're talking 50% or 90%, it seems far too high.

While insurers might argue that the high interest rates are justified due to the generally small sums that they are loaning out, I'm not sure I can see the justification for charging any interest. Annually vs monthly is a choice between paying for a year's cover upfront, or paying as you go. To look at monthly installments as a loan to the customer is twisted logic.

Strong arm tactics

Perhaps worse than the interest rates themselves is the fact that more than a third of the largest insurers automatically opt customers in to paying monthly. When Fairer Finance mystery shopped the 40 largest insurance brands - clicking through from comparison sites where we'd stated that our intention was to pay annually - 14 took us to a screen where we were auto-opted into paying in installments.

While it was always possible to opt back out, it's bad practice to try and make decisions on your customers' behalf - especially if they're decisions that will cost them more (and they're contrary to the choice they made on a comparison site just moments before).

The offending brands were 1st Central, the AA, Co-operative Insurance, Endsleigh, Halifax, Lloyds, Marks & Spencer, More Than, Post Office, Prudential, RAC, RIAS, Sainsbury's Bank and Zurich.

High fees and charges seem to be a depressingly common feature of today's insurance world, as competiton on headline prices forces insurers to try and make their margin elsewhere. It's a miserable trend, and one that is likely to only be broken by some intervention by the regulator. The FCA's report into comparison sites is due any day now. I've got high hopes that it will include some measures that make it harder for insurers to try and trip their customers into paying high interest rates.