The high expense of car insurance can easily be off set by paying in monthly instalments for the year’s cover. Many drivers select this option as it is a convenient choice, however, it is not always the cheapest in the long term. Paying monthly might has the upside of spreading out the cost of your insurance over the year, rather than paying one annual sum, but you could end up paying more over the course of the policy. And this is because paying for your car insurance on a monthly basis is equivalent to taking out a loan.
Insurance expert Kasey Cassells from USwitch insists paying for car insurance monthly can add up to 20 per cent on your price.
“You might think paying monthly is a case of splitting your annual cost into 12 monthly payments, but unfortunately it’s not so simple,” Cassells said.
“You’ll usually be asked to pay an upfront deposit of around 20 per cent 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.”
The average cost of car insurance in June 2019 was £485.35, according to moneysupermarket.com, which could see drivers paying on average more than £97 just from choosing to pay monthly rather than one annual payment upfront.
Although many can find it difficult to pay for the full amount of the policy in one payment, many don’t realise that several insurers don’t even offer monthly payments.
As a result motorists who are only searching for monthly car insurance payments options are also missing out on the cheapest deals.
“The standard payment option offered by all insurers is to pay for your car insurance upfront for the full year, in one single payment,” Cassells added.
“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.”
And for those who think an annal payment is out of their reach motoring expert Matt Oliver from GoCompare suggests an option to help with switching from monthly payments.
“Paying monthly for car insurance is a loan, with interest added, so paying for your car insurance in a lump sum is cheaper,” Oliver said.
“If you can’t afford to pay in one go, it’s worth considering other options such as paying on a 0% credit card – just make sure you make at least the minimum monthly repayments and pay off the balance on the card before the interest-free period ends.”