Payment By Installments

By Author: Marcus Stalder
Total Articles: 491
Comment this article

When we lack the cash to pay the full price as a lump sum, the ability to buy on credit terms has always been the preferred option. This gives us the goods or services for a small but regular outlay. This works just as well with insurance, although some simply prefer to have short-term policies. This avoids paying cancellation fees if we switch insurers part way through a policy term. In this, remember the insurer is denied the full cash price. There's a delay before costs are covered and a profit is made. This means the insurer is selling on credit and, in most states, there are laws to regulate the terms on which these sales can be made, controlling three key areas. The first is the amount of interest that can be charged. The second is the amount of the initial down payment. Finally, we have the vexed question of the number of installments. How does this work?

In the states where sales on credit are allowed, the single most important question is the amount of interest that can be charged on the outstanding balance. If you take a credit facility like a payday loan, this can be hundreds, sometimes even a thousand and ...
... more, percent per year and some states protect limited consumer classes like those serving in the military. But for more general transactions, there's considerable reluctance to interfere with the open market. The political philosophy is that lenders who charge too high a rate will go out of business. Because of the freedom of contract, lawmakers refuse to interfere. If you don't like the terms, don't accept the contract. But this goes hand-in-hand with the period of the loan. The longer the period over which the money is lent, the more interest is paid. This is also regulated in some states which require the contract of insurance to be for fixed periods of time, usually three, six or twelve months. This commits you to the appropriate number of monthly payments. If you default, this entitles the insurer to cancel the policy immediately, leaving you without coverage which can be inconvenient.

The amount of the down payment is also regulated with some states requiring us to pay two months in advance. To find out your local rules, check on the website of the Insurance Commissioner which usually has an explanation of the requirements. You may be lucky. Some states do not require a down payment unless you classify the inevitable monthly payment in advance a down payment. There's only one way to find the insurers offering the best terms at a reasonable premium payable in installments - shop around. Get as many auto insurance quotes as possible and read through all the small print to find the terms on which credit may be offered. Before you accept any offer, always make sure you understand what the total cost is going to be. So don't just accept the auto insurance quotes with the cheapest installments. Always look for the best deal giving you reasonable coverage at a price you can afford.