Should I pay my car insurance monthly or annually?

Written by Steve Cook

Published on

In most cases, paying for your car insurance annually (upfront for the year) is generally cheaper than choosing to pay in monthly instalments.

That’s because annual payments often avoid the interest or service fees that can be added to monthly plans.

But, there are benefits to paying for your insurance monthly, too.

In this guide, we’ll take a look at the pros and cons of paying monthly and annually, helping you to decide which option works best for you.

Should I pay my car insurance monthly or annually?

Why choose an annual car insurance policy?

Over the course of a year, you’re likely to save more money by paying for your insurance annually rather than monthly.

That’s because paying monthly is a bit like getting a loan from your insurance company. You’re basically spreading the annual cost of your policy over 12 months.

This “loan” often comes with interest and service charges, which get added to the cost of your policy. By paying your insurance annually, you can avoid these charges, helping to reduce the overall cost of your insurance over time.

Here’s an example:

Let’s say the annual cost of a car insurance policy is £1,200. There’s a monthly payment option, but the insurance company applies an interest rate. This raises the total cost to around £1,450 for the year. So, paying monthly will actually cost you £250 more over 12 months than paying annually.

Why choose a monthly car insurance policy?

While monthly insurance payments can cost you more over time, they also offer more flexibility, helping you to manage your budget throughout the year.

The cost of your car insurance is broken down into smaller chunks, so it’s a good option if you can’t afford a larger payment upfront.

Here’s an example:

Emma is a university student with a part-time job. Her budget is tight, so she can’t afford the annual renewal quote her car insurer has given her. Instead, she chooses the monthly payment option. This allows her to spread the cost over the year, helping her to manage her monthly budget while still getting the cover she needs to drive.

How can you lower your car insurance costs?

There are a few things you can do to help reduce your car insurance costs:

  • Choose a higher voluntary excess – Some insurers allow you to choose a higher voluntary excess, which can help to reduce your regular insurance payments. Just be sure that you can afford to pay out if you need to make a claim.
  • Choose the right car – A moderately-priced car, with a smaller engine and good security features, can help to lower your insurance group, which means lower insurance costs.
  • Build your no claims bonus – This proves to insurers that you’re a safe driver, helping to reduce how much you pay for your cover.
  • Choose a telematics policy – If you have the option, a telematics insurance policy can help you to reduce your costs through safe driving.


Before deciding whether to pay your car insurance monthly or annually, first take some time to assess your finances, your budget, and the type of cover you need.

While annual payments are typically cheaper over the long run, monthly payments can offer you more flexibility, allowing you to manage your budget more easily. It all comes down to what works best for you.

Frequently asked questions

Can I cancel my car insurance if I pay monthly?

Yes, you can cancel your car insurance policy even if you're on a monthly payment plan. You just need to give your insurance provider notice about your decision to cancel. Before you go ahead, first check whether you’ll need to pay any early cancellation charges – some insurers charge these fees as standard.

Can I cancel my yearly car insurance policy?

Yes, you have the freedom to cancel your yearly car insurance whenever you need to. If you cancel at renewal, there usually won't be any fees. But, if you cancel before the renewal period, you might need to pay a cancellation fee.

In any case, make sure you have another insurance policy in place if you still plan to use your car.

Does car insurance get cheaper after a year?

Your car insurance could become cheaper after a year, especially if you've driven carefully and avoided making a claim. This allows you to start building your no claims bonus, which is a feature insurers use to give you a discount when you renew.

Some insurers also offer an add-on which allows you to protect your no claims bonus. So, even if you’re involved in an accident and need to make a claim, your discount should be protected and applied to your policy when you renew.

Is van insurance cheaper when paid annually rather than monthly?

Similar to car insurance, commercial van insurance is usually cheaper when paid by the year, rather than by the month. Paying your van insurance upfront in a single annual payment usually means that you avoid the interest fees that are often added to monthly payment plans.

How to make car insurance cheaper for younger dirvers?

Reducing the cost of car insurance for young drivers is a very common question. Typicaly insurance for younger drivers is more expensive due to the higher risk profile. However, they can make car insurace cheaper by choosing a car in a lower insurance group, increasing the voluntary excess, installing a telematics device or black box, and completing a Pass Plus or advanced driving course.