Motorists pay 'penal interest' on instalment insurance
MOTORISTS are being forced to pay penal interest charges of up to 20pc when they choose to pay their insurance policies by instalment, it was revealed yesterday.
The interest charge can add €70 to the cost of insuring a typical family car which attracts a premium of €686, according to the National Consumer Agency (NCA).
The agency, which is funded by the State, warned drivers that the high rates of interest imposed on those who pay their policies monthly may wipe out their efforts in seeking the best value insurance.
NCA chief executive Ann Fitzgerald said drivers might be better off taking out a loan over a short period to pay their insurance rather than availing of expensive instalment payments arrangements.
"If you are shopping around for car insurance and you intend to pay by instalment, it is important to know how much extra you are paying for this credit.
"Bear in mind that the provider that offers the cheapest insurance may not offer the lowest rate on instalments."
By law providers must tell consumers the cost of credit and the annual percentage rate (APR).
This would allow drivers decide if they want to pay by instalment and compare the costs between providers, she said.
The NCA has updated a cost comparison survey of motor insurance premiums to include a list of the interest rates charged by insurers for allowing drivers to pay by instalment.
Zurich charges 19.9pc interest for paying by installment, with Quinn charging 19.66pc, Axa has a 17.24pc interest rate charge, with RSA Insurance imposing a 13.7pc interest rate.
At the other end of the scale, FBD Insurance charges 4.25pc, with Aviva charging 7pc.
Mr Fitzgerald said the high rates of interest charged for paying monthly would add 10pc to the overall cost of the premium on some policies.
She advised: "If you cannot afford to pay a lump sum, as an alternative you could shop around for a low-rate personal loan. But try to take it out over as short a term as possible, ideally a year."
The motor insurance cost comparison study shows that young drivers can make savings of more than €2,200 when insuring their cars.
The largest cost saving was for the 19-year-old female student, driving a 2003 Opel Corsa.
The quotes for fully comprehensive insurance for this consumer range from €928 up to €3,161, a difference of €2,233 between the cheapest and the most expensive provider.
Ms Fitzgerald added: "The latest survey reveals that it is in consumers' interests to shop around for their motor insurance. "Quotes for policies are wide-ranging and there are significant savings to be made, whether you choose to shop around yourself or go through a broker."
See www.itsyourmoney.ie for more information.