Whether you choose to pay your car insurance premiums monthly or annually usually depends on your financial circumstances, but there are definite advantages to paying upfront for your cover if you can afford to.
You’ll usually save quite a bit of money if you pay annually rather than monthly, which could come in handy given that so many of us are feeling the pinch due to steep living costs.
Here, we look at the benefits of paying both annually or monthly, and some other ways you might be able to lower your premiums.
Car insurance renewal premiums have a habit of increasing every year, even if you haven’t made a claim. Compare car insurance quotes from more than 110 UK providers.
Benefits of paying your car insurance premiums monthly
According to GoCompare car insurance, on average drivers could save around £249 by paying for their policies in one go rather than paying monthly. However, while it may cost more in the long run, paying for your car insurance monthly is more manageable for many people, and could make it easier to budget alongside other household bills.
If you don’t have a lump sum of cash available then paying monthly is likely to be the best option for you.
In some cases, paying monthly for your car insurance could have a positive impact on your credit score too, as you’ll be entering into a credit agreement with your insurer. If you keep up with your payments, this might help build your credit history. Bear in mind, though, that if you miss your monthly payments, this could have a detrimental effect on your credit score, as a missed payment may stay on your credit report for up to six years. You can find out more about ways to boost your credit score in our guide Seven steps to improve your credit score.
Why it costs more to pay car insurance premiums monthly
When you take out a car insurance policy you’ll sign up for a contract and agree to either pay the premium upfront or to spread the cost over the one-year term of the policy.
If you spread the cost over a year, which as mentioned most people find more manageable financially, insurers will typically want you to pay an initial deposit of around 20% of the annual amount and they’ll add interest to the remaining monthly payments.
Consumer association Which? wants the Financial Conduct Authority to prevent insurers from charging excessively high levels of interest, after it found the average annual percentage rate (APR) charged was a hefty 22.33%. It says that Co-op Insurance charged the highest APR for both car insurance monthly payments e at 29.89%, whilst the AA, Hastings Direct, InsurePink and People’s Choice all charge an APR of 26.9%. Two car insurers – NFU Mutual and Hiscox – do not charge any interest to pay monthly,
As different insurers charge different interest rates on monthly payments, shopping around for the best deal really can pay off. Whatever you do, when your car insurance is up for renewal, don’t be tempted to automatically accept the quote offered by your existing provider. Renewal premiums have a habit of increasing every year, even if you haven’t made a claim, so there is little reward for staying loyal to the same insurer. Find out more in our article Car insurance: why loyalty still doesn’t pay.
Compare cheap car insurance quotes
Car insurance renewal premiums have a habit of increasing every year, even if you haven’t made a claim. Compare car insurance quotes from over 110 UK providers – you could save up to £530* per year.
*51% of consumers could save £529.95 on their Car Insurance. The saving was calculated by comparing the cheapest price found with the average of the next five cheapest prices quoted by insurance providers on Seopa Ltd’s insurance comparison website. This is based on representative cost savings from February 2024 data. The savings you could achieve are dependent on your individual circumstances and how you selected your current insurance supplier.
Benefits of paying your car insurance premiums annually
The most obvious reason for paying your car insurance premiums annually is that this is the cheaper option. When you pay outright, you’re only paying for the premium itself and not any additional interest, so it costs less overall.
If you do have the money available to pay for your car insurance premium outright, then this is therefore probably the better option for you. Equally, if you’re self-employed and your income fluctuates, for example, you might feel more comfortable paying your premium in one go, rather than worrying about monthly payments later on.
Bear in mind that some insurers allow you to pay for your car insurance on a credit card, which means you might not need to find a lump sum upfront. If you get a credit card with a lengthy 0% interest period and you’re able to pay it off within this timeframe, this could mean that you’ve effectively paid the annual premium, but with the flexibility of monthly payments. However, you should only choose this option if you’re confident you can pay off what you owe within the interest-free period, as if you don’t, you’ll then start being charged hefty rates of interest.
You can read more about 0% credit cards in our article Top 0% credit cards for purchases compared.
Options that could lower your premiums
Whichever way you choose to pay your premiums, there are a few other things you might be able to do to drive down your premiums further:
Get black box car insurance
Also known as telematics car insurance, black box insurance is a type of car insurance that rewards you for better driving.
With this type of insurance, your insurer will install a device – the “black box” – which monitors your driving, logging things like speed, braking, time of day, and mileage.
If you consistently drive safely, your insurer may reduce your premiums. This is particularly good for high-risk groups like younger drivers.
You can learn more about telematics in our article What is black box car insurance?
Change your voluntary excess
When you take out any type of insurance, you’ll usually select a level of voluntary excess you’d be happy to pay if something goes wrong and you need to make a claim. Generally, the higher your voluntary excess, the cheaper your premiums will be, so if you’re looking to pay less each month this might be an option to consider.
Of course, it’s crucial to make sure you can afford to pay out the amount of voluntary excess as well as the compulsory excess you’ll need to pay if you have an accident.
Only pay for the miles you drive
Some insurers offer car insurance packages where you pay-by-mile policy which essentially means you only pay for the miles you drive. According to comparethemarket.com, switching to a pay-per-mile policy could save low-mileage drivers more than £140 a year.
For more tips on how to lower your car insurance costs, have a look at our article 10 practical tips to reduce your car insurance premiums.
Car insurance renewal premiums have a habit of increasing every year, even if you haven’t made a claim. Compare car insurance quotes from more than 110 UK providers.
Finally…
Whether you choose to pay car insurance premiums annually or monthly, make sure that you can keep up with your payments as repeatedly missing payments could mean your insurer cancels your policy, and you’re driving illegally.
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