Should You Borrow Money to Pay Insurance?

Insurance is something many of us have for a selection of things. It could be cover our car, home, pets, dental care or something else. Many insurance companies offer a lower rate if the insurance is paid in a lump sum covering a year rather than in monthly instalments. In order to get the cheaper rate, many people want to avoid paying in instalments but pay the lump sum. However, this can be a large chunk of money which may not be easy to get hold of. Therefore they may be tempted to borrow the money so that they can pay it and get it cheaper.

It is really important to be aware that borrowing money is expensive. You will be charged interest on the money that you borrow as well as possibly fees as well. You will also have to pay charges for setting up the loan in some cases. It is therefore really important to calculate the cost of the loan and also calculate the extra cost of paying monthly instalments. You will then be able to work out which option is the cheapest for you.
It is very likely that the loan option will be dearer, but there are some cases when it definitely will not be. This could include an interest free credit card. You may be lucky enough to be able to sign up to a credit card where you get a certain amount of time to borrow money for free. These can be extremely useful but they need to be used with care. Once the interest free period is up they will tend to go onto that lenders standard variable rate which can be very high. This is something that you will want to avoid because you will probably end up paying a lot more than you would if you pay monthly insurance payments. So make sure that you pay some off each month or save up money each month so that you are able to pay it all back just before the interest free period ends.

If there is no monthly option or you cannot afford the monthly option then you may only be able to afford the insurance if you take out a loan. This then becomes more complicated as you have to decide whether you feel it is worth paying the extra cost of a loan to get the insurance. It will depend on how high you assess the risk of not having the insurance. If it is car insurance then it is a legal requirement in some countries to have it and so you will not be able to drive without it. This means that you will have to decide whether driving is so important that you are prepared to get a loan to do it. Many people drive to work and have no other way of getting there. If this is the case for you then you may have little choice. Often it is not so obvious and you will have to decide what you think. It depends on how high you feel the risk is of not having the insurance. You may decide that you want to insure your contents because you have a lot of expensive things that you could not afford to replace or you may decide that it is not worth bothering to insure your contents if they are not worth that much. For pet insurance or dental insurance you may not b able to afford to pay for treatment without having the insurance so you may feel it is worth it. It can be a tricky decision and one that is well worth discussing with someone else. If you are not confident doing the calculations or you are just unsure what to do then having someone else to help you can be really helpful and can help you not to make a big mistake with your calculations.

So choosing whether to take a loan to pay your insurance may not be such a simple decision as you imagine. As well as considering the price, which will be a big factor, you have to also think about whether you want to risk going without the insurance and if not, whether you can afford it. If you do decide to go for a loan, then it is important that you pick one that is competitive on price and that you will be able to afford to repay.

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