Can you pay for car insurance, every four weeks?
Prefer to pay for your car insurance one month at a time? If your annual premium is due and you don't want to pay for a full year in advance, there are many UK insurers which offer the option to pay in regular instalments.
Spreading your payments over a year isn't as simple as dividing the amount quoted by your insurer for a one-off fee by twelve. Effectively you are borrowing the full amount from your insurer, who like any lender will charge interest. There is also a deposit to be paid to your insurer at the start of the policy, typically 20% of the full amount, and a cancellation fee should you decide to terminate the agreement prematurely.
However, whilst the final amount you pay will be greater than the equivalent single annual charge, monthly payment plans make the cost of insurance more manageable, and for people on lower incomes without sufficient savings they are often the only viable option. Instalment payment plans are also a good option for those who have experienced a sudden increase in the cost of their car insurance, for example if they have received penalty points on their driving licence, or have recently purchased a high performance vehicle.
Paying for insurance in instalments can offer motorists greater flexibility. By paying in instalments, you can use your car legally while you still need to, and sometimes you can simply cancel your policy when you no longer need it.
Subject to an insurer's terms and conditions, you can cancel a policy at any time. This is especially useful if you need short term cover. However, the cancellation charges levied by insurers vary considerably; some charge a fairly small fee in the event of cancellation but others can levy a much larger one. Always ensure that you have checked the terms and conditions of any policy on offer thoroughly before committing to an agreement, and bear in mind that if you just stop paying your premiums without the agreement of the insurer it could cause all sorts of problems. You won't want to find yourself having to keep paying for a policy which you no longer need, but you can't risk driving whilst uninsured either.
The principle drawback of paying for your car insurance in regular instalments is the additional financial cost you will incur over the life of the policy. Extra fees will vary between insurers, however you will be unlikely to pay less than 10% more than you would on a single payment plan, and could end up paying quite a fair bit more.
In addition, insurers are rumoured to be checking the credit rating of applicants for easy payment terms; those with a bad record or CCJs may well find it more expensive, or even find that they cannot get cover on easy terms at all.
Because of this variation between insurers, the best value quote on a single payment basis will not necessarily be the most cost-effective on a pay-as-you-go plan, so be sure to check again if you decide to pay in instalments after making your initial enquiries. Additionally, falling behind on your payments will invalidate your insurance, so be careful to keep a close eye on your finances for the duration of the agreement.
If you're struggling to find the money to pay for your car insurance, one alternative is to look again at your policy and consider if there are amendments you could make to lower the cost to within your budget. You could ask your insurer to raise the level of excess, or even downgrade from fully comprehensive to third party cover. If you are apprehensive about the increased risk involved, consider compromising with a 'third party, fire and theft' policy.
For those with a reasonably good credit rating, it is possible to use a credit card agreement to effectively pay in instalments at single payment prices. While this can work well, interest free credit card deals are sometimes limited to a short term (although some deals last for up to 4 years), so it is important to find the right deal, and remember to change providers when necessary in order to continue to enjoy these savings.
To sum up
Finally, while convenient, automatically renewing your car insurance rarely - if ever - offers the best value for money. So if you have received a renewal invoice from your current insurer and don't have sufficient funds to pay it, find out what their competitors are prepared to quote you. It could be a pleasant surprise, and as many insurers offer price matching, you could even be spared the inconvenience of switching.
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