Since salaries are often paid monthly, paying for car insurance in monthly instalments tends to fit in well with people’s finances. In these cases, the annual premium is divided by 12, then an additional charge for paying by monthly instalments may be added. Read on to find out more about the pros and cons of paying your car insurance monthly.
Paying for your car insurance annually via one upfront lump sum is usually the cheapest option. This is because no fee is added by the insurer for paying this way. Some insurers may not even offer a monthly option, so paying yearly means you will have access to all the deals in the marketplace. However, not everyone can or wishes to pay for this financial protection in one go, and for these people, paying by monthly instalments can be the more convenient option, or indeed the only option.
If you go for monthly instalments, you don’t have the problem of trying to get your hands on the full premium all at once, and it this can make budgeting much easier.
Be honest with yourself - are you likely to put by a little each month towards your next annual premium, or be able to pay a potentially large lump sum in full? If the answer to either or both of these questions is no, then paying monthly could be the right option for you.
If you opt to pay monthly, then you’re effectively borrowing the money to pay the premium. This means you’ll pay interest. The lender may also check your credit score before they agree to a monthly payment plan. If you have a low credit score, this could lead to you paying a higher rate of interest or you may even be refused the option of monthly instalments.
If you can get a credit card offering a 0% interest rate for an introductory period, this could provide you with another way to pay by instalments. If the initial 0% rate lasts for 12 months, you could actually pay off your insurance by 12 instalments like this. Setting up a direct debit to pay an equal amount off the credit card each month would be a way to make the most of that 0% rate.
There are a couple of possible pitfalls here, however. You must pay off the full amount before the end of the introductory period, or you could end up shelling out more in interest to the credit card company than you would have paid to the insurer.
Some car insurance providers may charge you a fee for paying your annual premium by credit card too. If they do, it is likely to be a small amount, but it still needs to be factored into the overall cost.
Which one is right for you?
If you can pay your annual premium in one go, then it is the most cost effective option. If you’re not great at budgeting, however, then paying monthly may help you manage your money.
Whichever you opt for, it pays to check as many prices as possible. You can do this via brokers, price comparison sites or directly with each insurer. If you pay yearly, then it’s wise to save some money each month towards next year’s premium.