Insurance companies typically give drivers two payment options: monthly or annual payments.
Yes, you can pay for car insurance upfront for the whole year. But should you pay upfront for the whole year? Or should you stick with monthly payments? Today, we’re explaining everything you need to know about paying for an entire year’s worth of car insurance upfront.
Most Insurance Companies Offer Annual Car Insurance Payments
Most insurance companies give drivers the opportunity to pay car insurance upfront for the entire year. In fact, this is the standard option offered by most insurance companies.
There are several major benefits of paying for an entire year’s worth of car insurance upfront. The first advantage is that insurers can offer special deals to drivers on annual payment plans. You might get special discounts, for example, and end up paying significantly less than you would if paying month to month.
So why isn’t everyone paying an annual lump sum for car insurance plans? The answer is obvious: many drivers don’t have $1,000 or $2,000 lying around in cash to pay for car insurance. Other drivers feel more comfortable paying month to month. Annual payments are ideal for drivers with smaller insurance plans worth a few hundred dollars, but many drivers simply cannot afford a one-time payment of $1,000 or $2,000.
Monthly Car Insurance Payments
Many drivers choose to pay for their insurance monthly, not annually. If you can’t afford to pay for annual insurance upfront – or if you’d prefer smaller monthly payments – then your insurance company will offer monthly rates.
Insurers typically add an extra fee for monthly payments. They’ll also charge interest. Drivers who pay for car insurance on a monthly basis will inevitably spend more money than drivers paying annually. However, the difference isn’t significant – it shouldn’t add more than 5% or 10% to the total annual cost of your policy in most cases, for example.
If you choose to pay for insurance monthly, then you may be asked to pay an upfront deposit. That deposit could be approximately 20% of your annual cost. The remaining payments will be spread out over the next 10 or 11 months.
Why do insurance companies charge more to drivers that pay monthly? Well, you’re essentially taking out a loan from your insurance company, then paying back that loan over a one year period. This is also why some insurance companies perform a credit check. Your credit score will set the APR for your payments.
If you have a particularly bad credit rating, then you may not even get the opportunity to pay for your insurance monthly. Other insurance companies might ask you to pay a higher deposit – say 50% upfront instead of 20%.
How Much Money Can You Save by Paying for Car Insurance Annually?
You’ll always save money by paying for car insurance annually. Expect to pay about $5 to $20 more per month for car insurance when paying monthly instead of annually. A $10 fee per month might not seem like much – but it adds up to $120 over the course of the year.
Ultimately, cost savings vary widely between insurance companies and plans. Some people might only save $20 off the annual cost of their policy by paying yearly, for example, while others can save $200. Talk to your insurance company and compare quotes to see whether annual or monthly options are right for you.
Other Things to Consider When Paying for Annual Car Insurance
The most important thing to know about paying a single annual car insurance payment is this: shop around.
Many insurance companies encourage customers to pay a single annual payment. That’s why you can save a considerable amount of money by paying a one-time annual fee. In fact, some insurance companies don’t even allow drivers to pay a monthly fee: you’re required to pay a one-time annual fee for car insurance.
Compare quotes today and see how car insurance companies in your area stack up. As a driver preparing to pay annually for car insurance, you’ll have plenty of options. You’ll have even more options if you have a good credit rating.