Admiral charging extra for Direct Debit because of loan from Admiral

pistolpete1980

I have received a renewal request for my car insurance. I usually pay it off in one lump sum, but I decided to look at the monthly direct debit option to spread the cost. Now I do know that DD are usually higher as it would cost the company slightly more money, so they process monthly payments rather than a one-time payment. However, I am confused when dealing with Admiral.

Admiral advised that taking out a direct debit will involve me being entered into a Regulated Fixed Sum Loan agreement for this period, borrowing the total premium and repaying it over monthly instalments, incurring a charge for credit (note, not the cost of covering processing payments). On top of this, the loan is (apparently) provided by Admiral. Therefore, they would be making additional profits, which I thought was not allowed under terms of direct debit payments.

Does anyone know if this is standard behaviour for a company when entering into DD agreements for car insurance?

TadleyBaggie

Totally normal, the entire premium is due at the start (hence the loan).

FrugaiMacDugal

It's the same with house insurance.

FrugaiMacDugal

Here's what Martin says.

sgthammer

Yep, that's how it works. You're not being charged more for paying by DD, you're paying interest on the loan that spreads the cost.

At least you've read the agreement, which puts you one up on some people. I used to work in car insurance, and two or three times a day someone would phone up not understanding why they were still on the hook for payments on a car that got totalled two months previously, or conversely panicking because a payment bounced and they might not be insured anymore. And I'd be sitting there going, "No, look: your cover and your credit agreement are different things..."

retiredbanker1

This is where a purchase free credit card is handy if you can get one.

MyRealNameToo

pistolpete1980 said:

I have received a renewal request for my car insurance. I usually pay it off in one lump sum, but I decided to look at the monthly direct debit option to spread the cost. Now I do know that DD are usually higher as it would cost the company slightly more money, so they process monthly payments rather than a one-time payment. However, I am confused when dealing with Admiral.

Admiral advised that taking out a direct debit will involve me being entered into a Regulated Fixed Sum Loan agreement for this period, borrowing the total premium and repaying it over monthly instalments, incurring a charge for credit (note, not the cost of covering processing payments). On top of this, the loan is (apparently) provided by Admiral. Therefore, they would be making additional profits, which I thought was not allowed under terms of direct debit payments.

Does anyone know if this is standard behaviour for a company when entering into DD agreements for car insurance?

It's nothing to do with DD, you can pay annually by DD and it will cost no more/less than paying by credit card or debit card. 

It's to do with the fact you are asking for a loan and like most loans you have to pay interest on the loan. Insurers typically arent that interested in being a loans company and so interest rates are more akin to a credit card than a personal loan for it to be of interest for them. In most non-direct insurer retailers they have to pay the premiums in full to the insurer within 28 days even though you are going to get 11-12 months to pay them, in some cases that means they literally have to get a loan themselves to fund your premiums. 

Similarly they are taking on credit risk, you could renage on paying back your loan and whilst this will result in the policy being cancelled for non-payment they often won't get back from the insurer the full shortfall nor have their operational costs covered. 

If you can't afford your premiums then there are cheaper ways to spread the cost than a loan from an insurance company. 

CliveOfIndia

pistolpete1980 said:

Now I do know that DD are usually higher as it would cost the company slightly more money

Spot on - it costs them more money because they're lending you the year's premium.  There's no such thing as free credit (despite what the likes of DFS etc. would have you believe), someone is paying for it somewhere along the line.

Yes, it's absolutely standard whenever you elect to pay any insurance monthly rather than yearly.  They lend you the money for the year's cost, and charge you interest.