There are two main ways you can pay your car insurance: the full sum to cover the next 12 months up front, or in 12 monthly instalments.
Paying by installments
The average price of fully comprehensive car insurance was £489 a year in October 2019, according to MoneySuperMarket data, so it’s understandable that people look to spread the cost by paying monthly.
There is a major drawback to monthly payments, however: paying by instalment usually makes the total cost of cover higher than it would be if you paid in one go.
This is because the car insurance company is effectively lending you the money to pay the premium, so it will charge you what amounts to interest on the repayments you make across the year.
If you opt to pay by instalments, your insurance provider will also run a credit check to see how you how you have managed debt in the past. If you have a low credit score, it might charge you a higher premium.
You can use our Credit Monitor service to see your credit score for free, and we’ve got plenty of hints and tips on how to improve it.
What does paying monthly do to your car insurance premium?
If you go down the monthyl route, your first payment will be larger, somewhere between 10% and 25% of your annual premium. The remaining amount will then usually be divided by 11 to give you payments for the rest of the year.
Some insurers divide this amount by 10, which makes the monthly payment higher but means you don’t pay anything in the final month.
Let’s say you run a quote on our car insurance page and an insurance company quotes a premium of £473. Using the filters at the top of the page you can ask to see how much it would cost if you were to pay monthly.
In this instance, you could be asked for an initial payment of £80.41 and 11 monthly payments of £40.87, giving a total of £529.98. So paying monthly would increase your premium by £56.98.
In another example, you are offered a premium of £447.47 if paid upfront in one go. Under the instalment plan, this means an initial payment of £98.44, one payment of £41.15 and nine payments of £41.19, giving you a total of £510.30.
Here, the difference between paying upfront and paying in instalments is £62.83.
If you’re a low-risk driver who gets an up-front quote of, say, £200.92, you could expect to pay £30.30 upfront and £18.87 a month for 10 months. You’d pay £219 in total.
At the other end of the scale, a one-off premium of £1,487.63 would translate into a total payment of £1,727.83 if it were made in instalments, made up of a first payment of £223.14 and 11 monthly payments of £136.79. So the instalments option would cost you an extra £240.20.
That’s a huge price difference, but if you’re in this situation you might find you have little choice but to accept it because you simply can’t afford to pay almost £1,500 in one go.
How to pay your car insurance
If you need to spread the cost of an expensive car insurance bill without paying extra you could consider using a 0% purchase credit card that has a minimum interest-free period of 12 months.
Using this method, you’d pay the premium to the insurance company in one go using the card, then you’d make your 12 monthly repayments to clear the resulting card balance instead.
It’s important to keep it to a maximum of 12 payments if you can, so that your payments for that year’s insurance don’t overlap with the next year’s. And whatever you do, you need to make sure you repay at least the minimum amount required by the credit card company each month, and that you clear the debt before the interest-free period comes to an end, otherwise you’ll be charged interest.
Crucially, when it comes to car insurance, you need to shop around at every renewal so that you find the most competitive deal. Nailing down the lowest possible premium will mean that the cost of paying by instalment, if that’s your chosen method, is as inexpensive as possible.