Pay Monthly Car Insurance

How monthly car insurance payments work

When you choose monthly payments, you will usually pay an initial deposit followed by a series of instalments. The insurer, broker or a separate finance company provides credit for the unpaid part of the annual premium. You then repay that amount over the agreed period.

The deposit and number of payments vary. They may not be twelve identical amounts, so check the actual schedule before buying. The policy itself normally runs for a full year even though you pay by instalments.

Does paying monthly cost more?

Usually, yes. Interest or a credit charge is commonly added to the premium, which means the total amount paid can be higher than if you paid annually in one sum. The difference can be modest or quite substantial.

When comparing quotations, look at the annual insurance premium, the deposit, each instalment and the total amount payable. The interest rate can be useful, but the total cost gives the clearest comparison in pounds and pence. Our guide to interest on monthly car insurance payments explains this in more detail.

Will there be a credit check?

There may be. Because instalments are normally a form of credit, the finance provider may check your credit record before agreeing to monthly payments. A poor credit history does not necessarily prevent you from obtaining car insurance, but it may affect whether instalments are offered or the terms available.

The provider should explain the type of search it carries out. If this is important to you, ask before completing the application. You can also read about credit scores and car insurance and how a poor credit score may affect the cost.

What happens if you miss a payment?

Do not ignore a missed instalment. The provider may try to collect it again, charge a fee or ask you to bring the account up to date. If the arrears are not resolved, the credit agreement and insurance policy may be cancelled.

A cancelled policy can create a further problem because insurers commonly ask whether you have ever had insurance cancelled. Contact the provider promptly if a payment is going to be late. Do not simply cancel the direct debit, as that does not end the policy correctly and may leave money owing. See what happens after a missed insurance payment.

Can you cancel before the year ends?

You can normally ask to cancel, but stopping the policy does not necessarily mean there is nothing more to pay. The insurer may calculate a refund for the unused cover, then deduct cancellation charges and any amount due for time already insured. The finance agreement must also be settled. If a claim has been made, different refund terms may apply.

Ask for a full cancellation calculation before making a decision. If you are changing cars rather than giving up driving, transferring the existing policy may be less expensive than cancelling and starting again. Our page about switching insurers during a policy covers another common situation.

What to compare before choosing a policy

Affordability matters, but the lowest monthly figure does not always represent the best value. Check:

• the deposit and date of the first instalment;
• the amount and number of later payments;
• the total payable when all credit charges are included;
• the compulsory and voluntary excesses;
• the level of cover and how you are allowed to use the car;
• fees for changing or cancelling the policy; and
• what happens if a payment is late.

Use the same accurate driver, vehicle and mileage details for every quote. If you can comfortably pay annually, compare that total with the instalment cost. If monthly payments suit your budget better, make sure each payment remains manageable throughout the policy—not just the initial deposit.

For further help, see our comparison of annual and monthly car insurance payments and our guide to car insurance after late payments.