Monthly vs. annual car insurance

If you’re looking to save on your car insurance, then you’re probably wondering whether it’s best to pay your insurance monthly or annually. Sit back, make a cup of tea and read on. We’ve got the facts…

If you’re looking to save on your car insurance, then you’re probably wondering whether it’s best to pay your insurance monthly or annually. Sit back, make a cup of tea and read on. We’ve got the facts…

Rebecca Goodman
Insurance expert
minute read
Do you know someone who could benefit from this article?
Posted 29 OCTOBER 2019 Last Updated 16 NOVEMBER 2021

Annual car insurance policy

Paying your car insurance premium in one go, on an annual basis, is the cheapest way to do it. This is because you won’t have to worry about any interest being added to the amount. You also won’t have to think about it again for the next 12 months. 

Saving on your car insurance is always attractive, especially considering that the average cost of car insurance is £688, according to our Premium Drivers Report, April 2022. It’s far more for some people though, like young drivers. 

Unfortunately, not everyone is in a financial position to be able to pay for their car insurance annually.  

If you can’t afford to pay in one lump sum, then the majority of insurance providers offer the option to pay in monthly instalments. But monthly payments also come with interest payments. 

If you’d like to switch car insurance provider to get a better deal or switch to monthly payments while you’re in the middle of your policy term, you’ll likely need to get in touch with your insurance provider. 

Monthly car insurance policy

While paying for your car insurance through monthly payments will be more expensive in the long run, it makes the cost easier to manage in the short term. 

If you choose to pay your car insurance monthly, most insurance providers will require you to pay an initial deposit. This deposit is usually 20% of the annual amount.  

You’ll then pay back the remainder over the next 11 months. The monthly cost of your car insurance will typically be calculated by dividing the remaining cost by 11 and adding interest onto it. Interest rates will vary according to your insurance provider. 

Is it better to pay car insurance monthly or annually?

It’s almost always better to pay annually, rather than monthly. This is because paying monthly usually incurs some sort of interest on your policy. So, while it breaks it down into more manageable chunks each month, you’re paying for that benefit. If you can afford to pay annually, it’s usually the cheapest way.

Does paying for car insurance monthly build credit?

Paying for your car insurance monthly usually involves interest charges, which means you’re entering into a credit agreement. If this is the case, paying monthly for your car insurance will appear on your credit report and, if you meet all of your monthly payments on time, you could see your credit score improve.  

But if you miss your payments, it could harm your credit score. If you pay for your insurance annually, you won’t be entering a credit agreement so it won’t affect your credit score.  

Some car insurance providers might carry out a soft credit check, but this won’t impact your score. 

Although paying monthly may improve your credit score, remember you’re paying for this – via the interest payments.  

Can you pay for your car insurance with a credit card?

Some providers will let you pay for your car insurance with a credit card. This could be a good option for paying a lump sum payment.  

It means you’ll avoid paying monthly interest payments to your car insurance provider. However, this only works out if the interest rate on the credit card is less than that charged by the car insurance provider. If, for example, you have a 0% period of interest on your credit card and you’re able to pay it back within this period, then you won’t pay any interest at all on your card. 

However, if you end up not clearing the credit card within the interest-free period or missing a payment, the penalties will wipe out any savings. 

Reducing the price of your car insurance

If you, like many other drivers in the UK, can’t afford to pay your premium in one go, there are other ways to potentially save on your car insurance. 

A great option to consider is telematics car insurance. With this type of policy, the better you drive, the bigger your discount could be. Your driving is monitored and if you continually drive well, your insurance provider may cut the cost of your policy. This is especially handy for those in high-risk groups, like young drivers.  

You might also want to think about adjusting your voluntary excess. A higher voluntary excess could mean lower premiums – but just be sure that you can afford to pay both the voluntary and compulsory excess if you’re involved in an accident. There’s no point choosing a huge excess if you can’t afford it when you make an insurance claim. 

You may also qualify for a discount if you install additional security features to your car. An alarm system is an excellent choice, as is an immobiliser

The most effective way to see if you can save on your car insurance is to shop around. At Compare the Market, we’ll gather quotes from a wide range of insurance providers in the UK on your behalf – and it will only take us a few minutes. 

Start a quote today and see if you can save. 

Paying for car insurance every six months

Some car insurance providers allow you to buy six-month car insurance policies. This means you could shop around more regularly and potentially get a better deal sooner. It could also help you pay for your policy upfront, by splitting a 12-month cost into two six-month bills.  

There are also shorter-term policies available for up to 28 days, which are designed for those who drive very infrequently. 

These options aren’t for everyone and not every car insurance provider will offer them, but they are something you might want to look into. 

Compare the Market don’t currently compare six-month car insurance policies, but we can compare temporary car insurance to cover you from an hour up to 28 days. 

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