Paying monthly vs annually for car insurance – Pas Trusted News

Pay-monthly car insurance will cost you more overall than paying annually for car insurance on the same policy.

Car insurers say pay-monthly insurance is more expensive because they are, in effect, agreeing to loan you the full cost of the insurance, and for this they will charge you interest. You pay them back for the insurance, plus the interest, in monthly instalments over a year.

Pay-monthly car insurance is very popular. Almost half (46 per cent) of car insurance customers chose to pay monthly, according to Which? and research by comparison site GoCompare. The other half of customers pay up front for annual car insurance.

But the cost for the convenience of pay-monthly car insurance is high – customers who can’t afford to pay up front are being hit by an average £302 penalty to pay monthly, the research from November 2022 found. 

Choosing to pay monthly is also getting more expensive over time. In November 2019, pay-monthly car insurance cost on average £673 for the year, while annual car insurance paid up front cost £456 – a penalty of £217 for paying monthly.

By November 2022, the penalty for paying monthly had jumped to £302, an increase of 39 per cent. Pay-monthly car insurance cost £757.60 versus £455.49 for annual car insurance paid up front.

Pay-monthly car insurance can seem like a good idea because it’s becoming more and more expensive to pay for annual car insurance up front.

Average car insurance cost 21 per cent more between April and June 2023 than the same time a year ago, according to the Association of British Insurers’ (ABI) car insurance tracker. This is the highest since the ABI started collecting this data in 2012.

For a year’s worth of private comprehensive car insurance, the average cost was £511, up 7 per cent on the previous three months, according to the ABI data.

Car insurance is particularly expensive for young drivers, making them more likely to choose to pay monthly.

Research from Consumer Intelligence in August 2023 found drivers under 25 years old are facing the steepest increases in the cost of car insurance, with premiums rising 66.7 per cent over the previous 12 months. The average premium for young drivers is now £1,640, according to Compare the Market. 

It’s no wonder that, according to GoCompare, younger customers often opt for monthly payments to spread the cost – but this means they also end up paying much more overall.

Low-income households are also more likely to pay monthly and face higher premiums, according to the Financial Conduct Authority.

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