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Paying monthly vs annually for car insurance

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Annual car insurance is a big expense to pay up front. Due to that, pay-monthly car insurance may seem like a good way to spread out the cost. But it may not be the deal you think it is. In fact, paying annually can be a great way to get cheap car insurance.

Is it cheaper to pay monthly or annually for car insurance?

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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Pay-annually car insurance advantages and disadvantages


  • Price: The biggest advantage of paying for annual car insurance up front is it will cost you less. This is because you won’t be paying interest fees on top of the cost of your insurance.
  • Soft credit check: If you choose to pay up front, car insurers will usually only run a soft credit check, or they won’t run a credit check at all. This is because you’re paying for everything in one go and not taking out a loan to repay over the course of the year like you do with pay-monthly insurance.


  • Lump sum required: The main disadvantage of paying for annual car insurance in one go is you need to have a large amount of cash on hand. With the average annual car insurance policy costing £511, or £1,640 for young drivers aged under 24, you’ll likely need some savings to cover the cost.

Pay-monthly car insurance advantages and disadvantages


  • More time to pay: The biggest advantage of pay-monthly car insurance is that you can spread the cost over 12 monthly instalments. You won’t need to take a big lump sum from your savings or borrow from friends or family to pay for your insurance.  
  • Boost your credit score: Making regular, on-time repayments towards your pay-monthly car insurance can help boost your credit score. This can help you get credit in future. Having a good credit score can also give you access to cheaper loans.


  • More expensive: The biggest disadvantage of pay-monthly car insurance is it will cost you more overall – and not just by a little bit, but by an average of £302 for the year. Not everyone will pay that much extra, but you’ll typically pay more for pay-monthly car insurance.
  • Credit score risk: Falling behind on your monthly car insurance payments will hurt your credit score. This will make it more difficult for you to get loans or credit cards in future and make borrowing more expensive.

To calculate the cost of your pay-monthly car insurance, insurers will take the annual cost of the policy and add the interest they will charge you for effectively lending you the full amount while you pay it off. 


The amount of interest you’ll be charged varies among different car insurance companies, and they don’t make the information easy to find. But with the average pay-monthly car insurance costing £757.60 versus £455.49 for annual car insurance paid upfront, the payment penalty is a 66 per cent difference, so that gives you some idea.


You may also be charged up to 20 per cent of the annual premium for the first month’s instalment if you choose to pay monthly. The rest of your instalments will be smaller, but you’ll still end up paying more overall because of the monthly payment penalty.

Is there an option to pay six months of car insurance?

Yes, some insurers offer temporary car insurance for just six months. But it’s not common, so you may not find as many options on comparison sites.

Most car insurance policies will cover you for a minimum of 12 months, but there are some cases where it makes sense to only get cover for six months. For example, this may be a good option if you’re planning to buy a new car within the next six months, you’re lending your car to a friend or family member for a short period, or you just want more time to shop around for a better annual deal.

Six-month car insurance may also be a good option if you can’t afford to pay annual car insurance in one go but can pay up front for a six-month policy.

Pay-as-you-go insurance, or pay-per-mile insurance, is another short-term car insurance option that can be cheaper for people who don’t drive very often or very far. 

With pay-as-you-go insurance, you’re only charged per mile or per hour you drive. You must also pay a monthly or yearly fee to insure the car while it’s parked in case it’s damaged or stolen. A small device is fitted to your car to measure your mileage. Pay-as-you-go insurance usually works as a rolling subscription, which you can cancel at any time.

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Paying monthly vs annually for car insurance FAQs

Yes, if you keep up with your repayments. If you have a limited or poor credit history, taking out credit such as pay-monthly insurance and making payments on time every month can improve your score. It’ll show future financial institutions you can manage your money and pay back everything you owe when it’s due.

But if you miss a repayment, even just once or twice, this will harm your credit score and make getting loans or credit cards more difficult and expensive.

Yes, if you pay off what you owe before the interest-free period on your credit card ends and you don’t miss any repayments.

Paying for your car insurance using an interest-free credit card gives you the best of both worlds. You can use the credit card to pay your annual car insurance in one go, then pay off what you owe on the credit card in manageable monthly instalments. You avoid paying interest like you would if you chose the pay-monthly option with your insurer.

It’s important to keep track of when the interest-free period on your credit card ends – standard interest rates jump to around 25 per cent. That’s also the case if you miss any monthly repayments, as you will lose your interest-free rate.

You may need to pay off more than the minimum repayment amount demanded by your credit card provider each month to pay off your car insurance in time. Divide the annual amount you paid by 12 and pay off that amount each month, regardless of what your credit card provider asks for as the minimum repayment.

  • Avoid auto-renewing with your current insurer: Auto-renewing your car insurance may seem like a neat time saver, but it’s probably costing you more. When your car insurance policy ends, it’s always worth getting a few quotes from other insurers, then calling your current insurer to haggle for a better deal. 
  • Look around early: Start looking around for a new policy early, at least a few weeks before you need it. Waiting until just a few days before your current policy runs out is likely to cost you more because insurers know you’re getting desperate, so they don’t need to offer you the best deals. If you can, try to avoid buying your car insurance policy in December. According to research by CompareTheMarket, that’s the most expensive month to buy in, with prices falling between February and April.
  • Choose telematics (or black box) insurance: Telematics car insurance is a cheaper way to get cover. But you must be a safe, responsible driver and stick to several rules. When you take out a telematics policy, you agree to attach a small device (the black box) to your car and download an app, both of which will track your driving. 
  • Opt for a higher voluntary excess: Agreeing to a higher voluntary excess will give you access to cheaper car insurance options. Insurers make policies with a higher voluntary excess cheaper because they know you’re less likely to claim for smaller, less expensive repairs.
  • Use comparison sites: Comparison websites allow you to compare more than a hundred different car insurance policies in one place, giving you the best chance of finding the cheapest deal for you. Alter different factors, such as the amount of voluntary excess, to see the impact on policy cost. Comparison sites also show you the cost of pay-monthly car insurance versus annual car insurance.
Laura Miller round image

Laura Miller

Money Writer

Laura Miller is a freelance journalist, editor, and producer. She has a wealth of consumer finance experience, having written about money matters and business for over 15 years.

During her tenure as a freelance writer, she has worked for ITN, Wired, and The Sunday Times, as well as financial institutions such as Aegon, the Chartered Insurance Institute, and Pension Bee, where she’s presenter of the Pension Confident Podcast.

Laura has previously held roles at The Times, where she was the Acting Editor of Times Money Mentor, The Telegraph as a senior finance reporter and was the co-host of the It’s Your Money Podcast, which was renowned for making complex finance issues accessible, and The Financial Times, where she worked as a News Editor. Laura has also worked at CNN,, and as a producer at Radio 5 Live.

Molly Dyson


After growing up with a passion for writing, Molly studied journalism and creative writing at university in her home country of the United States.

She has written for a variety of print and online publications, from small town newspapers to international magazines. Most of her 10-year career since relocating to the UK has been spent in business journalism, writing and editing for admin professionals at PA Life magazine and business travel managers at Business Travel News Europe and representing those titles at conferences around the world.

Now an Editor at the Independent Advisor, Molly is an expert in a broad range of consumer topics, that include solar panels and renewables, home improvements and home insurance, and consumer technology such as home security and VPNs.

In her free time, Molly can usually be found exploring the outdoors with her husband and their young son or gardening.