If you use a calculator and ask the right questions, you can save yourself some money. In the following example, there is an annual rate from an auto insurance company. Here it is illustrated how the final cost can differ from the quote you received over the phone. Let’s say you call an insurance agency for an auto insurance quote.
You give the agent all the information they require. The agent inputs the information into the computer and gives you a quote of $774 a year, $256 down and $86.73 a month. Does this sound familiar? Unfortunately, many consumers hear this and have no idea what they are going to pay for the year.
When shopping for auto insurance, you must do a few things:
1. Find out how many payments there are. (Many insurance companies bill
nine months or eleven months out of the year, instead of twelve)
2. Take the number of payments and multiply it by the monthly installment
3. Then add the buy now pay later car insurance.
This will give you the total estimate of the annual premium.
Let’s take another look at the company’s quote for $774.00; in this
case, there are payments for nine months of the year.
9 months X $86.73 =$780.57 Down Payment = $156.00 Total $936.57
Difference between the quote ($774.00) and the actual total ($936.57) = $167.57
What could the $167.57 be? Fees! That’s right; the difference could be installment fees, finance fees or an application fee.
Let’s take the same example and assume the individual made all of the payments late and made two endorsements.
9 months of late fees = 9 X $15.00 = $135.00
Two endorsement fees = 2 X $10.00 = $ 20.00
Add the other additional fees = $167.57
Total = $322.00
That’s almost half of the annual premium! By the end of the year, this consumer has paid $1,161.00! This is the real annual premium, not $774.00.
Many companies now offer very cheap car insurance no deposit to make obtaining insurance affordable for those consumers who are low income or have financial problems (like millions of homeowners facing foreclosure today). The down payment is often an obstacle in obtaining auto insurance. A big applaud those insurers who offer very cheap car insurance no deposit and eleven- or twelve-monthly installments. If it were not for their affordable plans, many consumers would drive uninsured.
But for some consumers, the very cheap car insurance o deposit can increase at the end the cost of insurance up to 50%! The companies that offer eleven month and twelve-month payment plans will usually bill the first monthly installment twenty days after the date of application, not the traditional thirty days. Because the payment due on the application date and the first installment payment is to be made only weeks apart, many consumers who are not properly educated on the payment process have the potential to fall into a bad situation. They could start off their policy period with a late payment. In Texas, the due date means the payment must be in the company or agent’s office on the due date. If payment comes after the due date, a fee can be applied.
Many on fixed incomes such as retirees and low-income consumers receive their monthly disbursements on the first of the month and will try to coordinate their insurance payments to match. Unfortunately, the problem they incur is that they think the date of application will become the due date for payment every month. This is a big mistake. The due date will be thirty days from the date of the first installment, not the application date. For example:
Application Date March 1, 2018
First Due Date March 21, 2018 (20 days from application)
Next Due Date April 21, 2018(30 Days from First Due Date)
Some consumers on fixed incomes will not be able to make the first due date because they receive their checks the first of the month. They will have to pay the premium and a late fee for March 21, 2018, with their April check. This same pattern will sometimes continue every month for eleven months. This will end up costing the low-income consumer an additional $165.00 a year in late fees (11 x $15.00 = $165.00)
This example should give you a good idea of how late fees and installment fees can easily add hundreds of dollars to your annual premium
Avoid Premium Financing.
Premium financing is exactly as it sounds. When your auto insurance premium is too expensive for you to pay the entire monthly installment or the company installment plan is unaffordable, you can premium finance to make your car insurance with no upfront payment and monthly installment affordable.
To do this, the consumer must enter into a legal agreement or contract with a third party to finance or set a payment plan. The premium finance company pays the insurance company, or you pay the finance company. You can compare it to financing a car. Sometimes it works out well, and sometimes it can be a disaster.
You start the process by signing a premium finance agreement that gives the premium finance company the power of attorney relationship. This means that they have control over your payments to the insurance company. Usually, once you enter a premium finance agreement, you cannot bypass the finance company and make direct payments to the insurance company. Also, if you don’t pay the finance company, for any reason, they have the power to cancel your insurance policy. Next, there are the finance charges. The rates that they can charge vary from state to state. The finance charges can add over $100.00 to your premium, and they have late charges (up to $15.00 a payment).
The following is an example of premium finance charges and the APR (annual percentage rate):
Premium Finance Charges APR
$450 $63.27 42.80%
$774 $90.81 35.94%
$1350 $104.49 21.24%
$2500 $170.88 29.26%
As you can see you can be adding 10%-15% more on your premium. The best alternative to premium financing is finding an auto insurance company with no installment fees.
To give an example of how premium financing could give you a headache, check out this story of an actual consumer:
An agent originally quoted Mr. Mathew $774.00, for an annual premium. The insurance company, in error, charged Mr. Buyer $1,295.00 a year.
The agent notified the premium finance company of the increase, in turn; the premium finance company raised the consumer’s monthly installment from $86.74 to $141.00 a month. The finance company paid the entire yearly amount, $1295.00, to the insurance company as part of the signed agreement.
Eventually, Mr. Mathew discovered the company error and notified the agent. The agent called the insurance company and was informed that it would take about five business days to correct.
In the meantime, Mr. Mathew has a bill of $141.00 to pay the finance company. Mr. Mathew tells the premium finance company that the insurance company and agent made a mistake on the policy. He also told the finance company that $141.00 is not in his budget.
The finance company tells him they cannot adjust the installment back to $86.74 until the insurance company reimburses them for the excess $521.00 ($1,295.00-$774.00) that they sent the insurance company.
It sounds a little confusing, but it sometimes happens with premium financing
If you don’t pay the finance company, they will tell the insurance company to cancel your policy. Remember you give them control of your policy when you sign the agreement. So be careful if your premium finance and ask these questions:
- How much are the late fees?
- Can you go online and make payments or adjustments?
- Can you pay the company directly, in full, if you want?
- Do you have more than one premium finance company to compare finance charges and APR?
Premium financing can work in the consumer’s favor most of the time, but the consumer must understand the whole process.