When it comes to car insurance most providers will give you two options on how to pay, by monthly installments or in one lump sum when taking out the policy. While paying on an annual basis tends to be cheaper and help reduce your car insurance costs, depending on your individual circumstances there may be an advantage to paying monthly.
Paying on a monthly basis will mean that you pay a little more for cover, as interest will be applied to each of your monthly instalments. However, if you are someone who has to stick to a particular monthly budget, for example a new driver or a family trying to avoid a larger dent in your bank account then paying monthly will help you spread out the total cost of cover.
In addition, if you are on a strict budget, paying by monthly installments will help you avoid putting significant financial strain on your bank account at the time of your next renewal.
While opting to pay your insurance on an annual basis will mean that you pay a much larger sum up front, it will work out cheaper in the long run as you can avoid the interest rates charged on monthly installments. If you are in a position where paying annually won’t lead to unnecessary financial stress then doing so can help reduce the cost of insurance for you.
Just like the decision on whether to purchase comprehensive or third party, fire and theft insurance, the decision on paying annually or on a monthly basis will depend on your own individual circumstances. Even if you’re not in a position to pay in one annual lump sum, there are some other things you can do to reduce the cost of your car insurance such as increasing your voluntary excess, which can help reduce the upfront cost of insurance but will mean you pay slightly more if you ever make a claim.
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