This may seem a strange question as many people are only aware of one way to pay for their car insurance and that is by direct debit on a monthly basis. Nowadays, most people pay their regular household bills such as council tax, water rates and electricity on a monthly basis as this makes it easier to budget.
You may be charged interest if you pay monthly for your car insurance
There is no financial advantage in paying those last three things annually. However, in the case of car insurance, it is often cheaper to pay for your car insurance on an annual basis in one whole lump sum.
Why is this the case? Well, you may not have been aware that a number of car insurance companies will charge you interest if you decide to pay for such insurance on a monthly basis. This is because, in effect, you are borrowing the money from the insurance company and paying it back over a twelve-month period. Therefore, they feel that you should be charged for doing so in the form of interest.
Therefore, from a financial perspective, your car insurance premiums could be lower if you paid annually rather than monthly.
In the current financial climate this could be a problem for a lot of people especially bearing in mind that car insurance usually costs several hundred pounds per annum. This is because there are many people that just do not have the funds available to pay their full year’s car insurance premium all in one go.
However, at least, if you were not before, you are now aware that there is the option to pay annually so if your financial circumstances enable you to pay in this way you can do so. Having said that, even if you could pay annually, you may still prefer to continue to pay for your car insurance on a monthly basis.
