Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I ran some numbers on a Traveler's quote, and the interest rate on it was only about 13.22% APR -- that's pretty good considering many other insurance companies charge a lot more.
Do insurance companies charge interest? Technically, no — they do not. However, the combination of the paid-in-full discount, the installment fees, and other charges result in an interest rate that can vary depending on the amount of the policy. Here's an example:
J is buying a car and wants to get coverage on it. Progressive is offering to insure him for $392 for 6 months paid as $65.35 down and $66.33 a month. This includes a $1 installment fee per EFT payment. Or he can take advantage of the paid in full discount by paying $358 all cash.
All of this information can be put into a financial calculator (or an Excel spreadsheet) to determine what the effective interest rate is.
PV = $358 (paid in full amount) less $65.35 (the down payment) = $292.65
FV = 0 (at the end, nothing is owed).
n = 5 payments (a down payment and 5 installments).
PMT = $66.33 (many calculators require you to put this number in as negative).
So in Excel just type in =RATE(5,-66.33,292.65) and you get 4.320% a month or 66.12% APR!! Those $1 EFT fees really add up when the total premium amount is low.
By way of comparison, the insured could put the whole amount on a credit card at 26.82% APR (2% a month) interest, pay the $65.35 down immediately and pay the rest over 5 months at $62.09 and save $4.24 a payment.
And this is not because the insured has bad credit — on the contrary, he has an excellent score otherwise he'd never get rates that low for full coverage on a brand new car!
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
