Martin Lewis raises alarm over car insurance direct debits | Personal Finance | Finance
Martin Lewis has raised the alarm for those paying their car insurance by monthly direct debit.
Speaking in a newly released video on the Money Saving Expert‘s YouTube channel, Lewis said he was surprised that a third of people still pay in monthly installments. He has previously advised people not to pay monthly, if possible.
This is because these arrangements are actually a “loan” and he says the interest rates can be more than 40 percent.
Importantly, he also explains what other options are available for people who can’t pay for their car insurance in full – and how they can pay in installments and avoid paying interest.
Lewis said: “Do you pay for your car insurance by monthly direct debit? If you do beware – because in reality it is a loan.
“I recently did a poll on this and I was quite surprised to find that one in three people pay this way as it’s something I’ve been warning about for a long time. I want to explain it to you and talk about ways you may be able to cut the cost.”
He added: “I don’t know of any car insurers who don’t have a finance firm that is charging interest for monthly direct debit. There may be one – but I don’t know of one.
Usually, it’s 10 percent or 20 percent or more. Those are high rates of interest – often higher than a typical high street credit card.
“So, what’s the alternative? Well, if you’re lucky enough to have the cash, then just pay annually upfront, one sum, no interest.
Of course, many people won’t be able to do that.”
He explained: “The first thing I would look at is getting yourself a 0% for purchases credit card that is a type of credit card that allows you to spend on it interest-free for a set period of time, usually a year or two. You’ll still need to make minimum
repayments, I should note.
“Get yourself one of those cards, work out what the annual payment is, divide it by 12, pay it off in a year. You’ll pay no interest
whatsoever.
“Don’t spread the cost over a longer period, because by then you’ll have next year’s car insurance to pay for. Be careful doing this because credit cards can be dangerous, for willy-nilly spending.
“This is a specific purpose you’re using it for to save you money. It’s planned, it’s budgeted for and it’s affordable because
you’d be paying more by monthly direct debit anyway – so it’s a good use of a credit card.
“But don’t let that tempt you into using credit cards for other purposes. There’s a full guide to 0% for purchase cards on
Lewis acknowledges that not everyone can get a 0% purchase credit card. And he has some good money saving advice for those people too.
“If the APR of the credit card is cheaper, then pay on the credit card – and pay back in monthly installments. Even better, if you could afford to pay a bit more off and repay it more quickly – that will cut the total amount of interest that you’ll pay.
“Now, we do have to watch out for any credit card transaction charges that might add a percent or two. You have just got to factor that in when you’re looking at the difference between the monthly direct debit APR and the credit card APR.”
