The number of insurance customers using credit to pay for one or more policies has soared in the past year as a combination of the cost of living squeeze, energy bills and premium rises turns up the pressure on budgets, new research from the UK’s leading premium finance company, Premium Credit, shows.
Its study found 72% of customers use some form of credit to fund cover compared with 61% a year ago with the biggest increases recorded for customers buying motor and home policies. Nearly half (49%) use credit for home insurance compared with 40% a year ago while 48% pay for motor insurance with credit compared with 40%2 last year.
The simplest option tends to be the pay monthly button on the comparison site. But interest rates can be extremely high, depending on which car insurance brand you choose. As the Martin Lewis Money Show highlighted last night, some companies are charging over 30% APR per year on monthly premiums. It’s usually cheaper to get a credit card deal, especially if you own a property. Tenants get charged more for loans or credit of course, so there is a double penalty for being poor; you can’t afford a year’s car insurance upfront and you get a worse APR rate on your credit card or loan.
NOT JUST CAR INSURANCE
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed twice yearly, saw increases in the use of credit for all categories of insurance it covers including life, pet, health, travel, critical illness and specialist insurance. Around two out of five (38%) customers who use some form of credit to pay for one or more insurance policy borrowed more than they had in the previous 12 months, the research found. However 42% said they had not borrowed more while 3% said they had cut borrowing. The other 17% either did not know if they had borrowed more or preferred not to say.
The ongoing cost of living squeeze was highlighted as the biggest reason for increased borrowing with 32% citing it while 18% blamed the impact of energy bills and 18% said premiums had increased. The most recent Confused.com Car Insurance Index said premiums have increased 40% in a year.
INSURE, OR SELL?
Around 10% who have borrowed more to pay for credit in the past 12 months say they have taken out an extra £500 or more in credit. Around one in 20 (5%) who use credit to pay for insurance say they have sold their car in the past year because they cannot afford cover while 8% have taken on extra jobs to pay for insurance.
Around 5% who use credit to pay for one or more insurance policies said they had defaulted on repayments during the past year and 7% fear they will miss repayments in the year ahead. That compares to 6% and 7% respectively in Premium Credit’s study last year. Premium Credit’s Insurance Index found credit cards remain the most popular form of borrowing with 36% using them compared with 27% relying on finance from their insurer and/or premium finance. That compares to 34% and 29% last year.
However the research shows there are issues with being accepted for credit – 6% were rejected for credit cards in the past year while 5% were offered a offered a higher rate than the one they applied for.
Premium Credit is advising customers to consider premium finance which, for a small charge, enables them to pay monthly for cover instead of in a lump sum. Spreading payments in such a way can help ease cash flow challenges and make paying for vital insurance simpler.
Adam Morghem, Premium Credit’s Strategy, Marketing & Communications Director said: “There has been a sharp rise in the number of people turning to credit to pay for one or more insurance policies as the cost of living pressures continue to tighten budgets.
Premium Credit’s research highlighted the cost of not having the right insurance – around 11% of people have not been able to make claims in the past five years either because they had no cover or had inadequate cover. An estimated 33% missed out on claims worth £3,000 or more, says the company.
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