Instalments v annual payments
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British drivers could save an incredible 1.6 billion a year by paying their car insurance premiums annually rather than monthly, new figures from MoneySupermarket show.
Thats a potential saving of 89 a year for each motorist.
However, the research reveals that 48% of drivers currently pay their premium in monthly installments despite the savings on offer just by changing the way they pay.
Rather than paying a one-off sum of 532 for a typical policy, they would make 12 payments amounting to 621, or 89 more than necessary.
This is because the majority of insurers charge you extra to 'borrow' the money required to cover the rest of your premium until you make the final payment.
Peter Harrison, car insurance expert at MoneySupermarket, said: 'Our analysis clearly shows that there are definite cost benefits overall to paying annually.'
Why do so many people pay monthly?
Many people don't realise that they'll pay more for car insurance by spreading the cost over the year.
However, of those who do recognise the higher cost involved, the main reason they continue to pay monthly is due to the high level of their premiums its often the case that a single payment is deemed unmanageable. Not surprising, when some people are paying more than 1000 a year for their car insurance.
MoneySupermarket's Peter Harrison said: 'Paying an upfront annual premium for car insurance can put a huge strain on a familys finances, and spreading the cost by paying monthly is a way to ease this burden.
'However, it could end up costing you more in the end because an additional cost will usually be applied if you opt to pay monthly rather than annually.'
Can I pay less while still spreading the cost?
A few insurers do not charge you extra for paying in monthly installments, so it's worth asking your insurer if it will allow you to pay the quoted annual premium in month-by-month instalments.
However, almost all companies charge more for this option, so the answer is likely to be no.
Fortunately, motorists can still spread the cost of a car insurance premium over the year without incurring any extra charges. All they need to do is take out one of the many available credit cards that charge 0% on purchases, use it to pay their premium, then pay the balance off over the next 12 months.
'Putting the cost of the premium on to a 0% purchase credit card allows drivers to spread the cost of their premium, effectively paying monthly without the additional interest, MoneySupermarket's Harrison said.
Cards that would currently allow you to do this include the Tesco Bank Clubcard Credit Card, which offers an introductory rate of 0% on purchases for the first 16 months, and the American Express Platinum Cashback Purchases Card, at 0% for 13 months.
The American Express card has the added advantage of offering at least 1.25% cashback on almost everything you buy, while the Tesco card gives you access to the Clubcard rewards scheme.
You will have to be disciplined to pay your car insurance premium this way, though. Otherwise, you could end up paying a very high rate of interest.
The Tesco card charges a representative APR of 16.9% (variable) after the first 16 months, while the American Express card has a 25 annual fee that pushes its representative APR up to 18.7% (variable).
Whats more, failing to pay off the total premium within 12 months could leave you paying for that one as well as your new insurance policy.
'Paying off the balance in full within 12 months will ensure that you wont be paying for this policy when your new one kicks in,' Harrison said.
It is also worth noting that some insurers will charge you a small fee for paying your premium by credit card.
What Car?'s car insurance partner is Go Compare