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Car Insurance Blog

Should I pay monthly or annually for car insurance?

Choosing between paying for car insurance monthly or annually can be a tough decision. On one hand, paying monthly may be more manageable and align with your monthly cash flow, but on the other hand, it typically involves paying interest on the amount borrowed and may result in a higher overall cost. On the other hand, paying annually in one lump sum could result in a lower overall cost, but maybe a larger upfront expense.

When considering these options, it’s important to also consider your financial stability and ability to make monthly payments on time. Failing to do so can result in your insurance cover being cancelled and may also have negative impacts on your credit score. Before making a decision, it is advisable to consider your personal financial situation and compare the costs of both options to determine the best choice for you.

Is it cheaper to pay monthly or annually for car insurance?

It’s typically cheaper to pay for car insurance annually instead of monthly. This is because paying in full avoids taking out a loan with the insurance company that would come with interest charges, leading to a higher overall cost for the policy.

Research by MoneySuperMarket shows that the average driver can save over £200 by paying annually, with even higher savings for young drivers with higher premiums. Despite this, data from MoneySuperMarket reveals that nearly half of car insurance policyholders still opt for monthly payments.

Paying monthly for car insurance: the pros and cons

Pros of paying car insurance monthly:

  • Flexibility: Paying monthly can allow you to spread the cost of insurance over the year, making it easier to manage your finances.
  • Avoid large upfront payments: Paying monthly can help you avoid having to make a large lump sum payment.
  • Budgeting: By dividing the cost of your car insurance over 12 months, you can see how much you’re spending each month, making it easier to budget for.

Cons of paying car insurance monthly:

  • Interest: Paying monthly often involves taking out a loan with the insurance company, and interest is added to the loan.
  • Total cost: As a result of interest, the total cost of your insurance policy may be higher if you choose to pay monthly.
  • Direct debits: You may need to set up a direct debit to pay your monthly car insurance, and if there are not enough funds in your account to cover payments, it could damage your credit score.
  • Fees: Some insurance providers charge administration fees for setting up a monthly payment plan, which can increase the cost of your policy.

Paying annually for car insurance: the pros and cons

Pros of paying car insurance annually:

  • Lower overall cost: Paying the entire premium in one lump sum will reduce the total cost of your car insurance since you will not incur interest on monthly instalments.
  • Budgeting: It is easier to budget for your car insurance when you pay annually, as you can include the cost of the premium in your yearly expenses.
  • No missed payments: With annual payments, there is no worry of missed payments, overdraft fees, or potential cancellation of your policy.
  • Single payment: Making a single payment for your car insurance saves you the hassle of keeping track of multiple payments throughout the year.
  • Discounts: Some insurance companies offer discounts for customers who choose to pay annually, helping you save even more money.
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Cons of paying car insurance annually:

  • Upfront cost: The biggest disadvantage of paying annually is the upfront cost. For many people, paying a large sum of money all at once can be a challenge.
  • Lack of flexibility: If you are struggling to make ends meet or encounter unexpected expenses, it can be difficult to find the funds to pay the premium in one lump sum.
  • No monthly budgeting: For those who prefer to manage their expenses on a monthly basis, paying annually may not be the best option.
  • No monthly payment options: Some insurance providers do not offer monthly payment options for annual premiums, so it may not be feasible for everyone.

Do I have to pay a deposit when I take out car insurance?

If you opt for an annual car insurance policy, you may be required to pay the entire premium upfront, although some insurers allow for a monthly direct debit option. In this case, the total cost of your policy is split into 12 payments, and the first payment will usually be taken at the start of your policy, with the rest of the payments taken in equal instalments over the rest of the policy term.

It is important to note that while some providers may offer a 0% deposit option, there may still be a credit check involved, and a deposit may be required if your credit score is low. Also, the monthly payments for car insurance will often have a higher interest rate than the annual premium, which will make the total cost of your insurance policy more expensive in the long run.

If I choose to pay monthly car insurance, will this affect my credit score?

Paying monthly car insurance can affect your credit score, so it is important to be aware of the potential consequences before you choose this method of payment. When you opt to pay monthly, you are essentially taking out a loan from the insurance company to cover the cost of your policy. This means that the insurer will perform a credit check on you to assess whether you are a good risk.

If you have a good credit history and score, you are likely to be approved for monthly payments, and your credit score will remain unchanged. However, if you have a poor credit score or history, the insurer may decline your application, and this could have a negative impact on your credit score.

In addition, it is important to remember that monthly payments come with additional costs, such as interest and administration fees, which can increase the total amount you pay for your car insurance. Furthermore, if you miss a monthly payment, this could also have a negative impact on your credit score.

In conclusion, if you are considering paying monthly car insurance, it is important to consider your credit score and history, as well as the additional costs involved. Before making a decision, it is wise to compare the costs of both options, and consider your ability to make regular monthly payments, so that you can make an informed choice that best suits your needs and financial situation.

Can I get car insurance with a poor credit rating?

Yes, you can get car insurance with a poor credit rating, but it may be more challenging and expensive. Many insurance companies use credit-based insurance scores to determine the risk of insuring a driver. This score is based on credit history and is used as a predictor of future claims. If you have a poor credit score, you may be seen as a higher risk, resulting in higher insurance premiums.

However, it is important to note that not all insurance companies use credit-based insurance scores, so it is worth shopping around for quotes from different insurers. Some insurance companies specialise in providing cover to drivers with poor credit, and they may offer more affordable rates. Additionally, improving your credit score over time may lead to lower insurance rates in the future.

Do I have to stick to a 12-month payment plan for my car insurance?

You don’t have to stick to a 12-month payment plan for car insurance. If it doesn’t fit your budget, consider a shorter policy, which allows you to search for cheaper quotes. Keep in mind that it’s illegal to drive without insurance, so make sure to always have cover in place or declare SORN. Some insurance providers offer temporary car insurance for a specific period, such as 7 months. It’s worth comparing quotes for these options if you don’t need a full 12-month policy.

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Will I get a refund if I cancel my car insurance before the 12-month period ends?

When cancelling your car insurance policy before the end of the 12-month period, the possibility of a refund depends on various factors. Generally, you have a 14-day cooling-off period, during which you can cancel the policy and receive a refund, with the days of insurance cover subtracted from the price.

If you chose an annual payment plan, you can expect a refund calculated on a pro-rata basis, minus any extra fees such as cancellation and administration fees. The pro-rata basis calculates the refund for the remaining months on the policy that you don’t need.

For monthly payment plans, the possibility of a refund is not always guaranteed. In some cases, you may have to pay an additional charge for the time you were insured, in addition to a cancellation and administration fee.

It’s important to note that any additional extras you may have purchased, such as a windscreen or personal belongings cover, are usually not included in the refund.

How can I reduce the cost of car insurance?

Reducing the cost of your car insurance policy can be done by following the below cost-saving strategies.

  1. Voluntary Excess: Agreeing to pay a higher voluntary excess towards any claims can lower the overall cost of your insurance.

  2. Car Insurance Groups: Choosing a car that is in one of the lower insurance groups can also reduce the cost of your insurance.

  3. Comprehensive Coverage: Taking out fully comprehensive insurance cover is often cheaper than third-party-only policies.

  4. Specialist Insurance: Consider alternative insurance options such as telematics insurance or pay-as-you-go policies, which can be more cost-effective for certain drivers.

  5. Comparison Shopping: Compare over 110 car insurance providers and get the best quotes from Comparoo. You may be surprised by how much you can save by switching to a more affordable option.

It’s worth noting that paying monthly for car insurance can be convenient, but it can also increase the overall cost of the policy compared to paying annually. Make sure to consider all of the factors mentioned above to find the best policy that fits your budget.

Compare car insurance quotes

Comparoo is a comparison website that allows you to compare car insurance quotes from over 110 providers. By using Comparoo, you can find the cheapest car insurance policy that suits your needs. With just a few clicks, you can compare policies from different providers and find the best deal.

Comparoo allows you to compare policies based on different factors such as cover, deductibles, and discounts. This means that you can find a policy that fits your budget and your cover needs.

On average, Comparoo customers can save up to £504 by comparing car insurance quotes. This is a significant saving that can help you to lower your car insurance costs and keep more money in your pocket.

If you’re looking for cheap car insurance, Comparoo is a great resource to help you find the best deal. With over 110 providers to choose from, you’re sure to find a policy that fits your needs and budget.

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