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. 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. We’ve got the facts… 

Daniel Hutson
From the Motor team
minute read
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Posted 25 MAY 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. Unfortunately, not everyone is in a financial position to be able to do this. Especially considering that the average cost of car insurance is £631, according to our Premium Drivers Report, September 2021.

If you can’t afford to pay in one lump sum, then you have the option to pay the amount in monthly instalments. If you choose an annual policy with a single annual payment, you could still receive an automated renewal notice at the end of your policy. 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 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?

Once you’ve compared quotes and found one you like, 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 best way.

Does paying for car insurance monthly build credit?

Paying for your car insurance monthly usually charges interest, 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, by meeting all of your monthly payments, could see your credit score improve over time. However, if you miss your payments, it could harm your credit score. If you pay for your insurance annually, you won’t be making 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.

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 many 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.

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.

You may also qualify for a discount if you install additional security features in 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 will mean 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. This option isn’t for everyone, and not every car insurance provider will offer it, but it is 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 for anywhere between an hour and 84 days.

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