The cost of car insurance can be daunting, so for many it’s a relief to be able to pay in monthly instalments for the year’s cover. While this may seem like the most convenient option, it’s not always the most affordable in the long run. This guide will discuss the pros and cons of annual and monthly car insurance payments so you can choose the right payment method for you.
Annual car insurance payments
The standard payment option offered by all insurers is to pay for your car insurance upfront for the full year, in one single payment.
The main benefit of this approach is that you will have access to deals from more insurers, as some only offer annual payment plans. You’re also likely to find a cheaper price by paying upfront.
The downside is that many drivers find it difficult to pay the full amount upfront – this is especially the case for young and inexperienced drivers, as their premiums can often cost thousands.
Monthly car insurance payments
If you can’t afford to pay upfront for the full year’s insurance on your car, don’t worry. Many insurers offer the option to pay for your cover in monthly instalments. Spreading the cost of your insurance over the year can make it more manageable as you won’t have to find a large lump sum at the start of your policy.
Unfortunately, you’re likely to pay more if you choose to pay monthly. Most insurers will add an extra fee for monthly payments as well as charging interest. Many insurers do not offer the option to pay monthly, so you could be missing out on some great deals by limiting your car insurance search to monthly payment plans.
Annual vs. monthly: the price difference
You might think paying monthly is a case of splitting your annual cost into 12 monthly payments, but unfortunately it’s not so simple — you’ll usually be asked to pay an upfront deposit of around 20% of your annual cost, then the rest of your payments will be spread over 10 or 11 months.
You’ll also have to pay interest if you pay monthly, as you’re effectively taking out a loan for the sum of your insurance and paying it back over the year. Because of this, most insurers will perform a credit check if you choose to pay in monthly instalments. Some insurers will use this information to set the APR for your payments. If you have any negative credit history, such as CCJs, you may find insurers will charge much more, and some may not offer the option to pay monthly if you’ve struggled to repay credit in the past.
Depending on your insurance premium and credit history, choosing to pay monthly can add up to an extra 20% on the cost of your insurance over the year.
Things to consider
You will usually get the best deals on your car insurance if you can afford to pay upfront for the whole year. But if you’re on a tight budget, that’s not always possible. If you do need to pay for your insurance monthly, use a price comparison website like uSwitch to shop around for the best deal, as some insurers can offer great prices on policies with monthly instalments.
If possible, try to put away a little money each month for next year’s policy. That way you can pay upfront and avoid any interest charges.
Compare quotes now and see prices for annual and monthly payments side by side.