A service charge has been added to your monthly auto insurance bill, and you’re wondering what it is. We’ve got you covered.
Some insurance companies charge a monthly payment fee if you do not pay in full for the policy.
An installment payment service fee usually covers the monthly payment processing. To avoid paying this monthly service fee, you can pay in full when you buy your auto insurance policy. Here’s what you need to know about an installment fee charge.
- Some insurance providers charge a fee for each monthly payment you make if you don’t pay the full policy amount up front.
- The expense of monthly payment processing is typically covered by an installment payment service fee.
- You can pay in full when you purchase auto insurance coverage to avoid paying this monthly service cost.
- If you decide to make monthly installments, ask your insurance agent what the cost is.
Why do insurance companies charge installment fees?
Insurance agencies use premium installment charges to cover the administrative costs of more frequent payment processing. More insurers offer one-year, six-month or one-month payments on car insurance policies.
It is to the insurer’s best advantage if you pay your entire annual premium at once. This means less payment processing but also more cash flow for them. Essentially, by paying in advance, you’re loaning money to the insurer for up to a year.
If you choose a monthly payment option, the insurer does not get the total amount up front and has to devote more time and effort to the more frequent payment processing.
How much will you pay in installment fees?
The answer to this question depends on how you are paying monthly payments.
If you call or get on your account every month to set up payment, you will pay an installment fee of about $3-$5.
Like Geico, many insurers charge a much lower installment fee (one dollar instead of five dollars) if your payments are set to withdraw directly from your bank account, also called electronic funds transfer (EFT).
The bottom line on the installment fee charge
Should you pay in advance annually or choose a monthly payment option? Which is best for you depends on your financial situation.
Paying in installments each month helps some people budget more effectively. Others who are comfortable with the annual payment in full reap the benefit of saving or repurposing the money they save on installment fees.
Check with your insurance agent to determine their insurance installment fee if you make monthly installment payments. Don’t forget to ask about automatic payment discounts and other discounts you may qualify for. Use this information to decide what payment plan is best for you.
If you are struggling to afford your insurance, check out our expert tips on how to get the cheapest car insurance without sacrificing coverage.