Should I pay monthly or annually for car insurance?
Paying annually for car insurance might mean a bigger all-in-one payment, but it does work out cheaper in the end.
Key takeaways
Paying for your car insurance annually is up to 31%
^ cheaper than paying monthly, and can save you up to £267^ If you can’t afford to pay annually, consider monthly payments, short-term insurance, or using a 0% purchase credit card
Monthly car insurance involves a credit check; timely payments may improve your credit score, while missed payments could harm it
Is it better to pay car insurance monthly or yearly?
Paying yearly is usually the cheapest and most convenient option.
MoneySuperMarket data indicates that motorists can save up to £267
Opting for an annual payment is also the easiest way to pay for your car insurance. Once you’ve paid your lump sum, you don’t need to think about it for another year.
Can you pay car insurance monthly?
Yes, usually. Most insurers offer two payment options for car insurance: a one-off payment covering 12 months or monthly instalments.
If making a lump sum payment is too much of a stretch, many insurance providers offer the option of monthly instalments. This has the advantage of breaking payments down into more manageable chunks. But the downside is that you are essentially taking out a 12-month loan with the insurance company and will have to pay added interest.
It usually works out as much more expensive and if you fail to keep up with your monthly payments, your cover could get cancelled and you might damage your credit score.
What if I can’t afford annual car insurance?
If a 12-month payment isn’t within your budget, there are other options you can consider:
Pay annually on a 0% interest credit card
Some insurance providers will let you pay for your car insurance with a credit card and if you have a 0% interest credit card, you will avoid paying interest. Just be sure to clear your balance in full before the 0% period ends.
Consider short-term or temporary insurance
If you don’t require a vehicle for 12 months, short-term car insurance can be a great way to find more affordable cover.
Just make sure you always have a policy in place while you're driving - it's illegal to not be insured. If you own a vehicle but won't be driving it you can apply for a free Statutory Off Road Notification (SORN) to declare your car ‘off-road’. SORN cars cannot be parked on public roads - it must be left on private property.
Pay monthly
Opt for the monthly instalment plans offered by many insurers. While this may cost more in the long run due to added interest, it spreads the financial burden.
Pros and cons of paying car insurance monthly
The main advantages of choosing to pay monthly car insurance are:
You can spread the cost of cover over the course of the year
You can avoid the cost of car insurance putting strain on other areas of your budget
You may be able to improve your credit score if you stick to the repayment plan (although having a low score often means you could pay even more for cover)
The main disadvantages are:
You will probably pay much more for cover (up to £267
^ more) than if you paid annuallyYour application credit check will show up on your credit file
You will damage your credit score if you miss one or more payments which could also leave you without insurance
Pros and cons of paying car insurance annually
The main advantages of paying for car insurance annually are:
It is cheaper as there is no interest to pay
Paying annually means most insurers only run a soft credit check (that leaves no mark on your credit report)
The main disadvantage is:
you’ll have to cover the whole premium in one lump sum
Do I have to pay a deposit when I take out car insurance?
Effectively, yes. You can’t take out car insurance without making a payment of some kind. If you choose to pay monthly car insurance, you will usually have to make a larger first payment of between 15% and 25% of your total premium. The remainder of the cost of cover will be split equally over the next 10 or 11 months. Some providers market their monthly car insurance policies as “no deposit car insurance”. However, this simply means the total cost is split equally over the 12 months of the policy term. You will still have to make the first, albeit potentially smaller, payment to get insurance.
Does paying monthly for my car insurance affect my credit score?
Yes it can. But it can improve your credit score as well as lower it.
A monthly car insurance contract means you're agreeing to a monthly payment plan, involving a credit check that appears on your credit file. Multiple checks can lower your credit score, and late repayments have the same effect. However, if you make all the repayments, this could help to boost your score – especially if it is quite low.
You can check your credit score for free, and find out more ways to improve it, via MoneySuperMarket’s Credit Score service.
Having a bad credit score doesn’t mean you won’t be able to get a car insurance policy, but it might make your premium more expensive. Insurers use credit scores to assess risk, and lower scores may lead to increased premiums.
Will I get a refund if I cancel my car insurance before the 12-month period ends?
If you cancel within 14 days
Normally, you have a cooling-off period when you take out car insurance. Usually lasting 14 days, you can cancel the policy during this time for a full refund minus the cost of the days you were insured.
If you pay annually
If you selected an annual payment, you will probably receive a refund which is worked out on a pro-rata basis (i.e. you will be refunded for the remaining months on the policy that you don’t need).
However, you will probably need to pay a cancellation and administration fee.
If you pay monthly
If you pay monthly car insurance, you will probably not get a refund as you've only paid for the time you've been covered.
You will probably be charged cancellation and administration fees, which can be higher than those for people who pay annually.
It’s worth remembering that any extras you pay for, like windscreen cover or personal belongings cover, generally aren’t included in the refund.
How can I reduce the cost of car insurance?
Apart from paying annually, there are plenty of other ways you could save money on your car insurance premium, including:
Agreeing to pay a higher voluntary excess towards any claims
Choosing a car in one of the lower insurance groups
Taking out fully comprehensive cover, which is often cheaper than third-party only policies
Considering specialist car insurance, such as telematics cover or pay-as-you-go policies
Not adding extras like legal expenses cover, car key cover or use of a courtesy car
Improving your car’s security
Using short-term car insurance policies if you need cover for less than 12 months
Shopping around for the best deal every year
💡 Top tip: Of these options, comparing quotes often creates the biggest savings. MoneySuperMarket does the work for you - and can save you up to 50.79%
For more tips on saving on your car insurance, check out our guide on how to get cheaper car insurance.
Compare car insurance quotes for cheaper insurance
No matter how you choose to pay for your car insurance, it’s a good idea to shop around every year to get the best deal. Don’t simply accept your existing insurer’s renewal quote!
You can find great deals that suit your needs by comparing quotes from 185
When making your choice, you can switch between annual and monthly payments to see what difference it makes to the cost of the policy you are considering, so you can select the policy plan that suits you best.
Author
Emily Sullivan
Author
Emily is a writer who specialises in the finance industry. She is driven by helping consumers save money and feel more confident with their finances. With a love for charity work and personal...
Reviewer
Kate Hughes
Money & Savings Expert
Multi award-winner and best-selling author Kate Hughes has been a financial journalist for more than 20 years. She started out at the Financial Times at just 21 years old, holding several senior...
