Guide to Prepayment Energy Tariffs
If you’re unwilling to commit to a mobile phone contract, or are unable to obtain one due to poor credit history, you may purchase the services on a pay-as-you-go (PAYG) basis. You buy airtime and data upfront and then use it, rather than receiving a flat monthly bill for a certain allowance of minutes and gigabytes.
You can purchase energy in much the same way: paying for it upfront, in blocks, rather than receiving it on credit and paying for it monthly. Using this method is a great way to plan budgets ahead and avoid bill surprises at the end of the month. Depending on the company, you can find reasonable rates for cheap electricity using this methodology.
The way you pay for your energy will be determined by the type of meter your property has: whether its a pre-payment meter or a credit meter (although, if eligible, you can switch from a prepayment to a credit meter). If you have a pre-payment meter currently in your meter box, you’ll need pre-payment, or PAYG, gas and electricity tariffs.
Prepayment meters used to be coin operated; customers would deposit shillings straight into the meter to buy units of electricity and gas. These days they’re more sophisticated, topped up with keys or cards that you can add money to at newsagents. ‘Smart’ pre-payment meters can even be monitored and topped up online or via apps.
Who might want, or need a pre-payment, tariff?
- Customers who like to keep tight control on their energy consumption and bills: On a budget? Worried about a surprise energy bill? A pre-payment tariff might be a way for you to monitor and ration your energy use and avoid inadvertently running up charges with your tumble drier you can’t pay. Many lower-income customers use pre-payment meters to limit their energy use, but this can be dangerous: Citizens Advice found 140,000 customers went without gas or electricity in 2017 because they couldn’t afford to top up their meters, with more than half (56%) dealing with cold homes and a third (35%) making do without light. Additionally, with a pre-payment meter you’ll end up paying more for each unit of energy you do use. And, these days if you’re worried about over-consuming energy, smart meters—available for both prepayment and credit tariffs—can provide you with similar information about your consumption, in kilowatt hours and pounds and pence.
- Customers with poor credit ratings or without bank accounts: You might not be able to qualify for a credit energy tariff if you have poor credit history, or have run up significant debts with an energy supplier in the past. Additionally, if you don’t have a bank account you won’t be able to pay for a credit tariff and will need to use a pre-payment tariff, where you can top up at a newsagent simply using cash.
- Customers who run up debt with energy suppliers in the past: If you’ve struggled to keep up with your energy bills in the past, a pre-payment tariff might be a way of managing bills and not winding up in the red. Alternatively, if your record with energy companies is particularly poor, you might not be able to qualify for a credit tariff.
- Landlords: Some landlords like to have pre-payment meters installed on their rental properties, so tenants can’t run up large energy bills and then vanish, leaving the landlord on the hook for the money.
Drawbacks of prepayment tariffs
- You have to keep on top of your balance and remember to top-up, or risk your lights switching off abruptly or your TV shutting off at the climax off the big game. Many PAYG tariffs these days come with £5 of emergency credit and will only cut off your power when it is safe to do so—so not overnight or on weekends or holidays when you might be unable to easily top up the meter. However, you’ll still have to regularly check your meter, or, if you have a smart meter, your in home display or app, to make sure your balance isn’t dwindling. And then make a dash to the shop when it does.
- You’ll pay more per unit of energy than with a credit energy tariff. A cap limits the amount your supplier can charge you per unit of gas and electricity purchased on a pay-as-you-go basis, but pre-payment tariffs are still among the most expensive ways to buy energy.
- Your energy use will increase during the winter and unlike with many other tariffs, which average your payments across the year, you’ll have to come up with more money to pay for it. You’ll have to budget carefully to ensure you can afford to heat and light your home during the winter—as not doing so could be dangerous for your health.