Monthly vs. annual car insurance

If you’re looking to save on your car insurance, it’s worth considering whether to pay your insurance monthly or annually. Here’s what you need to know.

Written by

Rebecca Goodman

Insurance expert

Last Updated

11 OCTOBER 2024

4 min read

Is it worth getting an annual car insurance policy?

Paying your car insurance premium in one go every year is the cheapest – and easiest – way to do it. That’s because you won’t have to worry about paying any interest. It also means you won’t have to think about it again for another 12 months.

Saving on your car insurance is always appealing, given that the average cost of comprehensive car insurance is £776^[1]. And some people, such as young drivers, will pay far more.

But not everyone is in a position to pay for their car insurance annually.

If you can’t afford to pay at once, most insurance providers will let you do it in monthly instalments. This has the advantage of breaking payments down into more manageable chunks. But the downside is that monthly payments come with added interest.

^[1]51% of our customers were quoted less than £775.48 for their comprehensive car insurance in September 2024.

What are the benefits of paying monthly for my car insurance?

Paying for your car insurance monthly may be more expensive over the long term, but it makes your payments easier to manage.

How are my monthly payments calculated?

If you pay your car insurance monthly, you’ll probably be asked to pay an initial deposit. This is usually around 20% of the total.

You’ll pay back the rest over the next 10 or 11 months. Your insurance provider will divide the total into instalments, including interest, and this is how much you’ll pay each month.

How much interest you pay will depend on your insurance provider, so if you’re planning to pay monthly, it’s worth shopping around.

Will paying for car insurance monthly build my credit rating?

It could do. Paying for your car insurance monthly means you’re effectively entering into a credit agreement with your insurance provider. So if you make your payments on time, you could see your credit score improve.

But missing payments could harm your credit score. Paying for your insurance annually doesn’t involve entering a credit agreement, so won’t affect your credit score.

Will insurance providers carry out a credit check if I want to pay monthly?

Yes, insurance providers will carry out a hard credit search if you apply to pay for your car insurance monthly. If you have a bad credit history, they may not agree to insure you, or may charge you more for your premium.

Can I pay for my car insurance by credit card?

Some insurance providers will let you pay for your car insurance with a credit card.

This could be a good way to make a lump-sum payment as it means you’ll avoid paying interest to your insurance provider. But this only makes financial sense if your credit card charges a lower interest rate than your insurance provider.

If you have a 0% interest grace period on your credit card and can pay off the full amount within this timeframe, you won’t pay any interest at all.

But if you don’t pay off the debt within the interest-free period, or you miss a payment, the penalties will wipe out any potential savings.

How can I lower the price of my car insurance?

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

Telematics car insurance

This is where your insurance provider gives you a device to monitor your driving. If you consistently drive safely, your insurance provider may reduce the price of your policy. This is handy for those in high-risk groups, such as young drivers.
Changing your voluntary excess

A higher voluntary excess could mean paying lower premiums. Just make sure you can afford both the voluntary and compulsory excess if you have an accident. There’s no point choosing a huge excess if you can’t afford it when you come to claim.
Installing extra security features, such as an alarm system or an immobiliser, may also mean you qualify for a discount.

But the most effective way to save on your car insurance is to shop around. We’ll gather quotes from a wide range of insurance providers for you – and it only takes a few minutes.

Paying for car insurance every six months

Some insurance providers let you buy six-month car insurance policies. This allows you to shop around more regularly and potentially take advantage of better deals. It could help you pay for your policy upfront, by splitting an annual cost into two bills.

There are also shorter-term policies available for up to 28 days, which are designed for those who drive very infrequently. And there’s also the option of pay-as-you-go car insurance, which can be based on the number of miles you drive or the amount of time you spend driving.

These options aren’t for everyone and not every insurance provider will offer them, but they may be worth looking 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.