Pay-as-you-go car insurance
Pay-as-you-go insurance can work out cheaper if you’re a low-mileage motorists. Find out how pay-as-you-go car insurance works and if it’s the right option for you.
What is pay-as-you-go car insurance?
Pay-as-you-go (PAYG) car insurance is a more flexible and personalised alternative to an annual policy. Instead of paying a set annual amount or set monthly instalments, premiums are based on how far you drive or how well you drive.
Types of pay-as-you-go car insurance
Pay-per-mile insurance
This is the main type of PAYG insurance.
Aimed at low mileage drivers, pay-per-mile car insurance is a rolling contract, where what you pay monthly is based on the number of miles you’ve driven. The less you drive, the less you pay.
There are other types of car insurance based on usage.
Pay how you drive
Aimed at new drivers, telematics (or black box insurance) allows insurance providers to track how safely you’re driving and base your premium on that.
Read more on black box insurance.
Pay per hour/per day
Temporary car insurance allows you to drive somebody else’s car, or somebody else to drive your car, for a few hours, days or weeks.
Read more on temporary car insurance.
What is pay-per-mile car insurance?
Pay by the mile insurance is a type of car insurance where premiums are based on how much you use your car.
Typically, with pay-per-mile providers, you pay monthly for the number of miles you drive. You also pay an additional amount, either monthly or yearly, to cover the time when your car is parked.
Some providers charge in a different way, but still based on usage. For example, one provider offers a system to help young drivers use a parent’s car. The driver pays for a set number of miles up-front, which are valid for a year.
Pay-per-mile insurance is aimed at those who drive less than the national average mileage each year. Some providers might have a maximum number of miles you can drive a year – for example, one provider sets a maximum of 6,000 miles.
How does pay-per-mile pay-as-you-go car insurance work?
You’ll usually be given a small tag or matchbox-sized device that tracks the number of miles you drive.
With some newer cars, you may be able to connect your pay-per-mile insurance provider directly with your mileometer.
Unlike a telematics or black box policy, your insurance provider won’t monitor your driving performance by recording speed, braking, cornering and the time of day you drive. The device should only track how far you drive.
Your insurance provider then uses this mileage data to determine how much you’ll pay for your premiums.
Not all pay-per-mile policies work in the same way, so make sure you understand what’s being measured and how it affects what you’ll pay.
Who does pay-per-mile car insurance work well for?
Pay-per-mile car insurance is great for:
- Older drivers – if you’re retired and driving less than before.
- Parents no longer having to drive their kids around, so doing less mileage.
- Remote workers – if you work from home, you might only use your car at the weekends and during holidays.
- Weekend car users – if you commute by public transport during the week and only use your vehicle at the weekends.
How much does pay-as-you-go insurance cost?
Here’s how much pay-by-mile insurance could cost, based on the number of miles you drive each year:
| Total annual mileage | Average pay-by-mile premium [1] |
| 0 to 999 | £385 |
| 1,000-1,999 | £391 |
| 2,000-2,999 | £413 |
| 3,000-3,999 | £434 |
| 4,000-4,999 | £477 |
| 5,000-5,999 | £516 |
| 6,000-6,999 | £543 |
| 7,000-7,999 | £592 |
| 8,000-8,999 | £632 |
| 9,000-9,999 | £812 |
| 10k+ | £2,320 |
| Average | £477 |
[1] 51% of Compare the Market customers were quoted less than the prices above for their car insurance in 2022 (January to December).
As with standard car insurance, how much you pay will also depend on your driving history, age, occupation and where you keep your car.
If you aren’t a low mileage driver, there are other ways you can get cheaper car insurance.
What are the advantages of a pay-per-mile insurance policy?
- Fairer for low mileage drivers.
- You only pay for the mileage you actually drive, not an estimation.
- Puts you in control – if you need to save money that month you can drive less, saving on fuel costs and insurance.
- Good for second cars that aren’t used very often.
- There’s no extra interest charge for paying monthly.
What are the disadvantages of a pay-per-mile insurance policy?
- If you drive a lot of miles each year, you’re probably better off with a traditional car insurance policy.
- If your circumstances change (for example, you get a new job and have a longer commute), your payments could increase.
- Payments may feel a little more complicated than with an annual policy. You may need to pay an up-front payment, a monthly cost and a monthly mileage cost.
- May not be suitable for new drivers or convicted drivers.
Why compare pay-as-you-go car insurance with Compare the Market?
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What does pay-per-mile car insurance cover?
Most pay-per-mile car insurance providers only offer comprehensive insurance, the highest level of protection.
As well as covering you for third-party damage to another vehicle and injuries to other people, comprehensive insurance also covers fire, theft and damage to your own car, no matter who’s at fault.
If you want third-party insurance, you may need to opt for an annual policy.
Can I add extras to my PAYG insurance policy?
You can add the following extras to your pay-as-you-go policy, if they’re not already included:
- Breakdown cover – roadside assistance if your car breaks down.
- Courtesy car cover – offers a temporary replacement vehicle if your car is being repaired.
- Personal accident cover – could pay out compensation if you or your partner are injured (or killed) in a car accident.
- Legal expenses – covers legal fees if someone makes a claim against you.
- Additional driver cover – covers extra drivers added to your policy (but remember, their mileage will be monitored too).
- Multi-car insurance – lets you cover more than one car on the same policy.
- Misfuelling – can cover repair costs if you use the wrong fuel.
- Lost keys cover – covers the cost of replacing your keys if they’re lost or stolen.
- Windscreen cover – pays for windscreen repairs or a replacement.
- European car insurance – covers you abroad.
Not all extras are offered by all pay-per-mile insurance providers. If you want a particular extra, check the policy details see if it can be added.
What our expert says...
"For lower mileage drivers, pay-per-mile policies could be the most cost-effective option way to cut the cost of car insurance. These flexible policies may can also benefit motorists who aren't sure how much they'll use their cars, as payments are based on the miles they actually drive."
- Alex Hasty, Insurance expert and Director at Compare the Market
Frequently asked questions
Is temporary car insurance the same as pay-as-you-go car insurance?
No, unlike pay-as-you-drive insurance, temporary car insurance isn’t ongoing. It only covers you for a set period: anything from one hour to 84 days, depending on your insurance provider.
Do I need a black box to get pay-per-mile insurance?
Yes, you’ll need a device to record your mileage. This can be as small as a matchbox. You may also need to install an app on your smartphone.
Is pay-per-mile insurance suitable for new drivers who have just passed their test?
PAYG insurance might be suitable for new drivers. However, some providers need you to have held a full licence for two years and have at least one year’s no claims discount.
I have classic car. Can I get pay-per-mile insurance?
Probably not. Classic cars usually don’t have the socket for the device that tracks how far you drive. It’s only been standard in cars manufactured from 2002.
But classic car insurance typically takes into account that this type of vehicle isn’t driven as much as a standard car.
What doesn’t pay-as-you-drive insurance cover?
Pay-as-you-drive insurance might not cover:
- Driving abroad, because the monitoring isn’t as effective overseas. But some pay by the mile providers do cover this, so check before you buy if it’s important to you.
- Non-family members added as named drivers. So you might not be able to add a friend to your policy.
- A modified car if you haven’t informed your provider about the modifications.
- All makes of electric cars.
There could be other exclusions, so check your policy documents to be sure.
Is my no claims bonus protected?
If you’ve built up a no claims discount, you should be able to transfer this to your new pay-per-mile policy.
Will I be charged if I cancel my policy?
Even though you’re paying monthly, you may have to pay a cancellation fee if you cancel before the end date shown on your policy. You may also be charged a fee to cover the costs of returning your tracker.
You’ll need to check the policy details to see how any up-front annual costs are treated on cancellation and any other potential fees that apply.
Will my pay-per-mile insurance policy come with an app?
Pay-per mile insurance policies typically come with an app and require a small device to be installed in your car.
Some apps allow you to categorise your mileage, to help you track petrol expenses for work, for example.
Will the PAYG device track my speed?
No, your speed isn’t tracked by the PAYG device or used to calculate your premiums.
What happens to my data and information?
Your driving data is only used by your pay-as-you-go insurance provider to measure how far you drive. However, if you have a serious accident and the police are involved, they could get a court order to make you hand over your data for evidence.
Every provider will have a policy on how your data is kept safe. Read this carefully so you understand how your data will be used.
Are there any curfews or night-time driving restrictions?
Typically, there aren’t any rules covering when you can and can’t drive on a pay-by-mile policy.
Can I get pay-per-mile car insurance for an electric vehicle?
Pay-as-you-go car insurance policies are available for hybrid and electric cars – but not all models are covered by all providers.
Can I compare pay-as-you-go insurance quotes?
When you compare car insurance quotes, you can view pay-per-mile policies that monitor how far you drive and telematics policies that monitor the way you drive. We also have some great deals on short-term car insurance.
