Paying for motor and home contents insurance by Direct Debit is adding an extra £2.7 billion to annual bills, according to research by MoneyExpert.com.

The website found that more than 19.5 million home contents policyholders and 18.5 million motor insurance customers chose this method of payment to spread the cost.

But they are being charged for the privilege — around 83 per cent of motor policies and 49 per cent of home contents policies charge interest on the insurance bill for allowing customers to pay by Direct Debit.

And with charges on this payment method averaging 21% for motor insurance and 19.07% for home contents, that means customers are paying around £2.7 billion extra a year for the convenience.

Tim Berry, a director at MoneyExpert.com, said: “Opting to pay by Direct Debit seems a good way of spreading the cost of your annual insurance premium. However, people should bear in mind that some insurers believe they are making a loan to customers when they let them pay by this method.

“That means the convenience of spreading your payments comes with a charge which can wipe out any savings they may have earned through researching the market for the best deal.”