When you go to take out an insurance policy – whether for your home, car or even your mobile phone – you may be familiar with paying for it in monthly instalments.
This is called ‘premium financing’, as you borrow the money for the full policy and pay it back in smaller, monthly chunks. It’s a popular way of paying for insurance as many of us aren’t in a position to pay the full amount up front.
But, as you’re effectively borrowing the cash, having a poor credit history means you may face a few hurdles when you go to apply.
You might not be able to pay monthly
When you pay monthly, you’re still covered for the full amount should you need to claim, whether you’re one or nine months into your policy. This is because, in a sense, you’re loaning the full amount of the policy from your insurer. Your insurer expects that you’ll pay out the full policy over the period of time you agree to when you sign up, which is usually done in 12-month blocks.
But, similarly to when applying for a loan or credit card, you may find that having a damaged credit history works against you. An insurer may turn your application for pay-monthly insurance down if you have struggled with credit in the past. As it is a kind of loan, they may worry that you could fall behind on your payments.
This is why some insurers may only accept you if you pay for the policy up front. Your credit history is less important here, as you have already paid for your policy, which means you don’t have to borrow anything.
Here at Ocean, we specialise in helping people who have struggled with credit in the past. After all, we believe everyone deserves the right to insure their home and treasured belongings – and we understand that not everyone is in a position to pay for their policy up front. That’s why we offer competitive pay-monthly insurance policies from some of the leading UK insurers, and we could find the right policy for you even if you’ve got a poor credit history.
You may have to pay more
Often, pay-monthly insurance means you’ll pay more overall than if you paid for the policy up front. This is because you’re effectively paying extra for the convenience of breaking your payments up into monthly chunks.
While the cost of your insurance premium is the same, the extra you pay is in the form of interest - as you would expect with other credit like a loan or credit card. In many cases, you won’t actually deal with the lender, as it’s usually all done through the insurer you take the policy out with.
In turn, just how much interest you’re charged varies depending on your credit history. Having a poor or damaged credit file may mean you have to pay more each month than someone who has a near-perfect history of managing credit. This is because the insurer may view you as more of a risk.
However, unlike a credit card or loan, you might not know how much interest you’re actually paying on top of your premium. The quote you’re given will reflect your credit history, but you may not realise that it is more expensive than if you had a good credit history.
Disclaimer: All information and links are correct at the time of publishing.