It is very costly to have car insurance, but necessary, not only because it is required by law but because it protects both your assets and your finances. In these tough economic times, many drivers are struggling with this cost and have to include monthly payments on their insurance policy as part of their household budget. When you can afford to pay the insurance premiums in one lump sum at the same time that you take out or renew a policy, then you won’t pay any interest on the premiums.
The main reason that insurance providers charge interest on car insurance premiums is that it does cost to finance the amount of money. Even though you are not borrowing money, paying out the cost of the policy over a number of months works in the same manner as paying off a loan. You pay financing charges over the course of the payment schedule because in reality you are borrowing the insurance from the provider and chances are the company contracts out the financing to a financial institution.
If the only way you can pay for the car insurance is to make monthly payments, you should try to pay it off in as few months as possible. This will save you interest on the remaining months of the year. When you get the quote for your policy, take a look at your monthly budget to work out how much payment you can afford each month. Then when you contact the insurance agent you can work out a payment schedule that meets your needs.
Each payment will be due on the same date each month. Many insurance providers require you to submit a cancelled check so that the amount can be debited automatically from your account or you may have to submit post-dated checks for the payment period. Once the debit is made or the check is cashed, if you do not have an overdraft on your account and the check bounces or the debit transaction is recalled, then you are subject to further charged – this time from the bank. In the case of a returned check, the cost is very high and even with an overdraft you do have to pay a bank fee based on the amount of money by which your account is overdrawn.
Having your insurance cancelled because you missed premium payments puts you into a high risk category for insurance. When you renew a policy or switch providers, one of the factors that determines your premium is your insurance history. If you have a history of defaulting on your insurance premium payments by not making them on time, then you become a risk for the insurance provider, who may even refuse to issue a policy for you.
There are other ways in which you can become an assigned risk for an insurance provider. If you have a history of traffic tickets, careless driving, DUI’s or even if you have had several accidents in the past you will have to pay a higher premium for your car insurance. Depending on the number of claims you have submitted to the insurance provider in the past and the severity of these claims, an insurance provider may decide not to take you on as a client.
Another factor that can impact your cost of auto insurance is your credit rating. If you have a bad credit rating, this sends a signal to the insurance provider that you are a poor risk for insurance because you may not complete the payment schedule causing the provider to cancel the policy. A low credit score also tells the insurance provider that you do not pay attention to making sure your bills are paid and for this reason, you could become an assigned risk with higher than average premium payments.