Have you ever worked out how much discount you get for paying your car insurance premiums annually instead of monthly? Many insurance companies will happily offer slightly cheaper insurance premiums for paying your bill for 12 months in advance.
The amount you pay for your car insurance over the course of a year often works out cheaper than if you’d paid your premiums in monthly instalments. Of course, not everyone has the cash available to pay for the full 12 months of insurance upfront. Even though they’re aware that paying monthly can cost a little more, many drivers will take the monthly payment option to help keep the household budget and cash-flow under control.
Which is Cheaper: Monthly or Yearly Insurance Payments?
Unfortunately, some insurance companies in the UK can add as much as 10.75% to the quoted premium amount if you switch to monthly payments. The idea of paying up to 10% extra for the same level of insurance coverage is enough to persuade many car owners to stick with their annual payments.
When the difference in cost is displayed as a percentage it can sound scary. Yet when you look at the actual numbers involved, the reality can appear a bit less daunting.
Let’s assume your insurance company quotes you £350 per year for insuring your Renault Clio 1.2 litre hatchback. They also quote you £32 per month if you choose to pay your premiums on a monthly basis.
If you multiply £32 by 12 months, you’ll end up paying a total of £384 for your car insurance over the term of a year. Essentially, you’re paying £34 pounds a year extra, which adds up to a little more than one extra monthly payment.
Paying your car insurance monthly means your household cash-flow isn’t stung with a huge annual bill. The downside is that you end up paying more than 13 months’ worth of premiums each year.
What Are Your Options?
If you’re serious about reducing the amount you pay for your car insurance bills, you could put aside some cash and just pay the whole annual premium upfront. Of course, if you don’t have that kind of money available, there are some alternative options.
Option One: 0% credit card
You can save a bit of money by applying for a credit card that offers a 0% interest rate on purchases. The object of this strategy is to pay your entire £350 car insurance bill on your new 0% credit card and then repay it over 12 months.
You pay zero interest on the amount you spent, as long as you don’t use your card to pay for other things. You also get the benefit of paying cheaper insurance premiums. You will need to be disciplined enough to ensure you pay back the entire amount before the 0% interest period expires, otherwise you could end up paying much more than you thought you were saving.
Option Two: High Interest Savings Account
If you’re really keen to keep your budget under control, you do have the option of saving for your next insurance bill before it arrives. Let’s assume you’ve just paid your annual insurance premium, so you know you have another 12 months before the next bill arrives.
For the purpose of this example, let’s say you put £32 per month into a high interest savings account. Your bank is paying you 3% on your savings.
Over the course of 12 months, you would have deposited £385 into your savings account. The bank would have paid you a total of £5.42 in interest over that time, which gives you a total of £390.42 in your bank account.
After 12 months, your next insurance bill arrives and you pay £350 for your annual premium. You’re left with £40.42 in your savings account to start over for the following year.
Cut Car Insurance Costs by Shopping Around
No matter whether you decide to pay your premiums monthly or yearly, it’s still important to shop around to get the best quote. Different insurance companies will offer varying levels of cover for a range of difference prices.
Be sure you compare the options available and work out exactly what you’re paying before you sign up. Then do some sums and see what payment options work best for your budget. You’ll be surprised by how much you can save.
Buy annually and save on your next car insurance quote from us.