Drivers are desperately searching for ways to cut the cost of car insurance as premiums soar to an average of £1,000 a year – and almost £3,000 for 18-year-olds.
Many are using price comparison websites or looking to pay for car insurance monthly rather than a lump sum upfront.
However, spreading the cost comes with a hefty price penalty which can add hundreds of pounds to the cost.
Recent research by Which? found a car insurance policy priced at £583 if paid upfront rose by £309 to £892 when the driver paid monthly throughout the year.
And young drivers face much bigger mark-ups – possibly more than £500 – for spreading the cost of what can be extortionate premiums.
The increases are the result of motor insurers adding interest to the total cost at APR interest rates which can be as high as 36.33 per cent.
City watchdogs at the Financial Conduct Authority (FCA) have repeatedly warned insurance companies that their interest rates on pay monthly drivers are ‘excessively high’.
The Which? Director of Policy and Advocacy, Rocio Concha, said: “Car insurance is a legal requirement for motorists – and yet those who can’t afford to pay in one go annually are often being penalised through unjustifiably high interest rates on their monthly repayments.
“That isn’t right – and it’s now up to the financial regulator to outline an action plan to tackle the unfair costs of paying monthly for insurance.”
According to FCA data, a third of motorists in the UK paid for their car insurance policy monthly.
However, credit experts at ClearScore say this is expected to rise sharply based on a 92 percent increase in the number of online searches for “pay monthly car insurance” in the past year.
ClearScore also spotted a 50 percent annual increase in the number of people searching for “how to get cheaper car insurance”.
Here Clearscore offers six tips for drivers looking to beat the rising costs:
Switch about three weeks before renewal
Martin Lewis has been in the press recently talking about “actuarial risk”, dubbing it “absolutely ridiculous”.
“Actuarial risk” is something insurers use because they’ve found a link between drivers who renew their insurance at the last minute and those who make a higher number of claims, so they ramp up the price of cover for those drivers.
Securing a new car insurance policy weeks before their existing policy ends is likely to show that drivers are less rushed, and often gives them better prices.
Choose your job title carefully
Insurers base their prices on past claims data, and have found that some jobs are riskier than others. People with car-related jobs, such as mechanics or car salesmen, are considered riskier drivers.
This could be because they spend more time behind the wheel or because they’re more confident drivers, so they tend to drive faster. Because of this, insurers make them pay more in premiums to make up for that potential extra risk.
If there is more than one way to describe what you do, get separate quotes for all of them so you can find the cheapest. If you’re a barber, would you get a cheaper deal describing yourself as a hairdresser? What about an illustrator versus an artist?
Don’t auto-renew
It may be convenient for drivers to just let their car insurance policy auto-renew every year, but their insurer won’t reward your loyalty. In fact, it will probably hike their premium, with research finding that auto-renewing costs consumers around £1.4 billion every year.
Shopping around for a better deal could result in a saving of up to £222, yet around 35 percent of motorists still let their policies renew automatically.
Drivers can stop auto-renewal by changing your account settings online (if they manage their policy that way), or by phoning their provider. Then set a reminder on their phone or calendar, so you can be ready to switch three weeks before their current policy ends.
Boost your excess
If drivers choose to pay a higher excess, they could reduce the cost of your policy, but of course it means they’ll pay more if you need to make a claim.
If they have savings that could cover the excess if they have an accident, for example, boosting their voluntary excess could be a sensible way to bring down the price of your cover.
Add another driver – but be wary of accidentally “fronting”
If drivers are young or inexperienced, adding an older driver with a long no-claims record to their policy as an additional driver can bring down their premiums.
This is because the insurer assumes they’ll spend less time driving the car if it’s shared, reducing the chances of an accident.
A word of warning though: don’t be tempted to lie about who is the main driver of the car. This is called “fronting”, It’s illegal and could land drivers with six points on their licence and an unlimited fine, or a possible driving ban. If drivers are taken to court, they could even face time in prison.
Consider using DriveScore
DriveScore is a new, free app just launched from ClearScore to help drivers save on their car insurance. Find details here.
The app allows drivers to measure how they drive, in a similar way to ‘black-box’ technology, turning their phone into a silent coach, running in the background, distraction-free, allowing them to focus on the road.
Once the app collects enough data, it will give drivers a ‘score’ for the quality of their driving out of 1,000.
Drivers can then share their scores with DriveScore’s insurance partners, who will be able to offer personalised insurance premiums based on drivers’ driving skills. The minimum number of miles to get an initial score is 150, and drivers’ scores will be based on their driving over the past 365 days.
