Martin Lewis warns against paying household bill monthly – and how using a credit card can even make it CHEAPER
MARTIN Lewis has warned against paying a regular household bill monthly – and it could even be cheaper covering the cost using a credit card.
The consumer champion said to steer clear of paying for car insurance in regular instalments over the year and instead pay annually if you can.
In a recent poll on X, Lewis asked his followers how they pay for motor cover, with over 32% revealing they do it via monthly direct debit.
In response to the figures, Martin said he was taken aback at how many were not paying up front.
This is because when you pay monthly, the insurer classes it as you taking out a loan and charges you interest, meaning you pay more.
When you pay up front there’s no interest on top.
Martin said: “Monthly direct debit is a LOAN – they pay the year for you and loan you the money often at 20% – 40% APR way more than a typical credit card.
“I’m shocked by how many pay by monthly DD. Avoid if at all possible.”
Martin went on to say while he understood paying for car insurance monthly can help drivers budget, the APR’s charged by many big insurers mean a cheaper option can be paying annually with a credit card, ideally charging 0%.
And even some credit cards without interest-free periods charge lower rates than insurers.
APR refers to the total cost of your borrowing for the year.
Martin added: “If you have to, most would be far better to put it on a 0% card and repay it over the 12 months.
“Or even a standard high st card with APR 20%, undercuts many big insurers who charge up to 40% APR.”
The latest MSE newsletter revealed how Direct Line charges 23% APR, Aviva 16%, Esure 26% and Hedgehog 44%.
How to use a credit card to pay for car insurance
Interest-free credit cards let you spend for a set period of time without being charged interest, after which point you are.
However, you still have to make monthly repayments and if you miss them can see your 0% interest deal removed.
But they can be a good option if you need to cover an up front cost, like an annual payment for car insurance.
In this case, you would pay for your car insurance up front using the credit card, then pay off the balance each month.
This of course means you would have to work out how much you need to pay off each month so you are not left with any outstanding balance after the 0% interest period ends.
As an example, if your car insurance policy cost £480 for the year and your 0% period lasted 12 months, you would need to pay off £40 on the credit card each month.
You may also be able to pay a minimum payment each month, which makes your repayments more manageable.
However, you may breach the 0% interest period and have to pay interest on any outstanding balance which will cost you more overall.
Meanwhile, if you’re using a normal credit card to pay for your car insurance up front, paying just the minimum amount each month may be more expensive than paying your insurer monthly if it means you are paying off the loan, and the interest on that loan, over a longer time.
Of course, always bear in mind that a credit card is still borrowing and if you are using one to pay for your car insurance, try limiting it to just that and don’t use it on other spending as your repayment costs could rack up.
If you do miss monthly repayments, you can be hit with late payment fees with the typical charge around £12.
Meanwhile, not everyone will be eligible for a 0% credit card and you may be refused one if your credit rating is poor.
You can check our the best credit card deals by going on price comparison sites like MSE, MoneySuperMarket and Compare the Market.
How else to save money on car insurance
Tom Banks, car insurance expert from GoCompare previously told The Sun it’s worth parking your vehicle in a garage or driveway, if you have one, as parking off-road can lower the chances of it being vandalised or stolen.
“Insurers will deem you as less of a risk to insure, thereby lowering your premium,” he explained.
If you’ve got the budget, consider installing alarms and other safety devices in your car too.
“These could help bring your car insurance cost down, as well as keeping your vehicle safe,” Tom advised.
Up your voluntary excess as well – this is the maximum figure you have to pay if you are involved in an accident.
By increasing your excess, you are taking on more financial responsibility for your driving – insurers reward this by offering you a cheaper premium.
If you’ve recently added any modifications to your car, make sure they are included in your policy to ensure you’re covered as well.
If not, you may find your policy is invalidated and you’re forced to pay out over the odds in the case of an accident.
What is car insurance?
Consumer reporter Sam Walker talks you through what car insurance is and what it covers you for…
Car insurance pays out if your vehicle is stolen, damaged, catches on fire or is involved in an accident.
As a minimum, it protects you against any damage you case to other road users, the public or their property – these are called third parties.
You only need to claim on your car insurance when an accident is your fault.
If another motorist is to blame, their insurance should pay out instead.
Car insurance, unlike home insurance, is a legal requirement and if you don’t have it you can be fined up to £1,000.
You can also have your vehicle seized and destroyed.
However, you don’t need to insure your car if it is classed as “off-road”, or holds a statutory off road notification (SORN).
The vehicle has to be kept on private land and not a public highway though.
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