Cutting your insurance bill is more important than ever as average premiums accelerate to an eye-watering record high of £995 a year, according to latest figures from Confused.com. Luckily, there are plenty of options for those looking to drive down the price, but only if you know about them.
Small mistakes or lack of knowledge could cost you dear.
One common thing that motorists do is pay their insurance premiums on a monthly basis, rather than all in one go.
This is a convenient way of spreading the cost and millions may have no choice, as they simply don’t have the cash to hand.
Younger motorists in particular may struggle to pay the whole lot upfront, as drivers aged between 17 and 24 paid a staggering £1,929 on average in 2023.
Yet paying monthly can backfire as new research shows it costs hundreds of pounds more than paying the full premium in one go.
The difference between what motorists pay monthly and annually is more than £300 and getting wider, according to consumer champion Which?, which is calling on the Financial Conduct Authority (FCA) to tackle the issue.
Which? used sales data from comparison site GoCompare to find the average difference between annual and monthly payers.
In December 2018, it found that paying monthly cost £667 a year against £460 for annual payers.
That’s a difference of £207, which is pretty wide but nothing compared to today.
By September 2023, monthly payers were charged £892 on average while annual payers paid £583.
That’s a difference of a staggering £309 in a year. So there’s a real cost to the convenience of paying monthly
One reason paying monthly costs more is that younger drivers, who typically pay the highest premiums, are more likely to pay monthly because they don’t have enough cash to pay upfront.
That’s not the only reason, though.
What many motorists fail to realise is that insurers treat monthly payers as if they were taking out a loan and can impose interest rates of 30 per cent or more.
Which? director of policy and advocacy Rocio Concha said car insurance is a legal requirement for motorists yet those who can’t afford to pay in one go are often penalised through unjustifiably high interest rates. “That isn’t right – and it’s up to the financial regulator to outline an action plan to tackle the unfair costs.”
Since January 2022, the FCA has required insurers to offer “fair value” and Concha said it “shouldn’t hesitate to take action against providers charging monthly customers excessive interest rates”.
Don’t wait for the regulator to act, though. Take action yourself.
READ MORE: ‘Save some serious money’ – Drivers can cut insurance costs with a simple tweak
Alistair Douglas, chief executive of credit report experts, Totally Money, said paying monthly can help with budgeting but ultimately backfires.
He suggests making one annual payment if you can afford it, but acknowledges this isn’t possible for many.
Douglas suggests a hack that can solve the problem. “Take out a credit card that charges zero interest on purchases for an introductory period, and use that to pay for your motor insurance.”
There’s a choice of cards, but Douglas highlights Barclay’s Platinum credit card which charges zero interest on purchases for up to 21 months, giving you plenty of time to pay off the cost.
Just make sure you clear it before your next annual car insurance bill lands.
There’s plenty more you can do to reverse recent insurance hikes. Submitting accurate mileage, maintaining a no-claims bonus, installing a car alarm or tracking device, or choosing a black box telematics insurance policy can all save money.
It’s worth putting in a little effort and shopping around at renewal for a cheaper policy, too. That can save motorists hundreds of pounds.
