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Can you spread the payments for UK car insurance?

Given the ever increasing cost of motor insurance in the UK, it's no surprise that a similarly increasing number of motorists are finding paying for it a struggle. Traditionally, motorists have had to pay for a full year's insurance in advance, with every subsequent year's premium costing more than the previous one.

The Regular Payment Option

If you find that paying for a year's insurance for your car would be unmanageable, you may, depending on your circumstances, be able to buy motor insurance and pay for it in up to 12 instalments. Many insurance companies now offer this option, and for many of their customers, there's no other choice as their annual premium is too high to pay for it all in one payment. Spreading the cost over a year can make paying for your car insurance far more manageable. It may also make it more expensive, but spread over a year, the added expense is less noticeable.

Added Expenses

Typically, your first payment will be a 20% deposit - some insurers charge less, some more - followed by 11 monthly payments. In fact, what the company is really offering you is a loan equal to the cost of the annual premium. As it's a loan, you repay it each month with interest added. There might also be a 'processing' fee payable for providing you with this option

Payment Methods

Depending on the company, there are usually several methods of payment that are acceptable. These include paying by cheque, online bank transfer or even paying cash in person at one of their branches. Most companies, however, prefer that you set up a direct debit with your bank. This ensures that all payments will be made automatically and on time. Some companies may offer a slight reduction in your premium if you pay this way; others might insist on it as a condition of acceptance to their payment scheme. You may already be aware that so-called 'no deposit' schemes simply don't exist; paying at least a small sum in advance is a legal requirement so you will need to have at least a deposit available immediately, unless you arrange a loan independently.

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Your Credit Rating

Insurance companies normally advertise their 'easy' payment option showing a favourable interest rate (APR). However, that may not be the rate that applies to you. In order to work out the interest they will charge you personally, the insurance company will perform a credit check. If your credit rating is poor, they will charge a higher interest rate, and if it's really poor, they may decline to offer you a deferred payment option altogether.

Find a Loan Independently

Rather than pay the insurance company's interest and any other charges, an alternative option is to find a loan independently and pay your annual insurance premium in advance. Alternatively, perhaps you could find a low, or no interest credit card deal. This has several advantages. First, you can look around and find a loan, such as a bank loan, with more reasonable repayment conditions. Secondly, with enough borrowed money to pay for a year's motor insurance, you can find better deals from far more insurance companies including those who only provide motor insurance paid annually in full.

Greater Competition Means Better Deals

Some good news is that as more insurance companies are now offering a regular payment option, they're having to compete with each other more fiercely. That means that if you shop around, using sites such as moneysupermarket.com or comparethemarket.com you can find some companies offering similar payment options that are more reasonable. Some are accepting less than an initial 20% deposit, while others are accepting customers with poorer credit ratings.

Is the Month to Month Payment Option Worth it?

That depends on your circumstances. Typically, it can add around 10-20% to your annual insurance costs, and it also restricts your choice of insurer to those companies that are willing to provide a hire-purchase type payment option. Sometimes the cheapest insurers don't offer easy terms, and having the premium available could save you a lot of money. On the other hand, motor insurance is a legal requirement for all motorists in the UK, and if you can't afford to pay the annual premium cost in one single payment, the credit account option can make the difference between driving and not driving.