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UPDATED: Sep 26, 2016
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If your financial position is preventing you from paying your car insurance premiums in full and up-front, you might be wondering if you can pay monthly for car insurance instead.
The good news is that you can. The bad news is that it takes a bit more work to find a favorable policy under such circumstances, and you will pay a little more for the convenience of making monthly payments.
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What are the options for paying for car insurance premiums?
It used to be that there was only one option for paying for your insurance premiums. You had to pay them on an annual basis.
Fortunately, most insurance companies have come to the realization that people need and want flexibility when it comes to paying for their insurance.
If you would like to pay more frequently, several companies offer quarterly option so that you pay every three months. Most car insurance companies now also offer the option to pay your premium monthly.
What are the advantages and disadvantages to paying your car insurance monthly?
One of the advantages of paying your car insurance on a monthly basis is that you can divide up your premium into 12 smaller increments, which makes it easier to budget your money.
When you pay by the month, you can easily and conveniently set up an automatic payment through your bank account or your credit card, so you don’t even have to worry about remembering to pay it on time.
For many people, the monthly payment option is ideal because they often don’t have the large amount of money required when the annual payment is due.
A disadvantage of paying your car insurance premium on a monthly basis is that, in the end, it costs you more than if you paid on an annual basis. The insurance company will often charge you more in administrative fees when you decide to pay more frequently.
Another disadvantage of paying monthly is that you have to remember to pay your bill on time every month. If you have a busy life, paying the bill may get away from you. If you pay it late, you probably will incur late fees which add up in the end.
What are the advantages and disadvantages to paying your car insurance once a year?
If you choose to pay your car insurance premium on an annual basis, one of the advantages is that you will be saving money. Most insurance companies will give you a discount for paying the premium in one lump sum. Depending on the company, this discount may be anywhere from 5 percent to 20 percent off your total premium.
Another advantage is once you pay your premium, you don’t have to worry about paying it for another 12 months, so it is one less bill you have to worry about each month.
A significant disadvantage for a lot of people in regards to paying car insurance on an annual basis is that they need to come up with a large sum of money at one time. For some people, this amount of money is not an issue, but for those who live paycheck to paycheck, this lump sum is difficult.
If possible, you should try to estimate your payment ahead of time and ensure you have the money in the bank to cover it.
Another disadvantage to paying on an annual basis is that if you choose to switch to a different insurance company during that year, it can be a pain. Although insurance companies will usually refund your money, it can take them a month or two to get the check to you, which may affect you financially.
If you would like to afford to pay annually and would like to learn how to budget your money better, you should check out Smart Money online magazine.
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Why don’t all companies charge the same for monthly car insurance payments?
Insurance companies are not compelled by law to provide a specific monthly payment plan at a specific cost. Therefore, they take some things into consideration when they decide to offer monthly payment plans.
First, statistics prove that those with lower credit ratings tend to have more accidents or violations on their driving records. It’s assumed that those who need monthly payment options will be on the lower end of the economic scale and therefore, a higher risk to the insurance company.
Likewise, those who pay their premiums in full and upfront are deemed to be higher on the economic scale and get the best rates.
Second, when the car insurance company accepts monthly payments, it has less money to invest as a means of protection against a possible car insurance claim by the driver. This higher risk of financial loss is passed along to the consumer in higher monthly payments.
Finally, administering monthly payments requires a larger account receivable staff and more collection services. All of these things add up to increased costs that are passed on to you.
Are there car insurance companies who specialize in monthly payment plans?
In most major cities there are car insurance companies who specialize in monthly payment plans. Generally, these insurance companies are simply agencies rather than underwriters, making their money by selling insurance policies for larger providers.
These companies tend to specialize in high-risk drivers as well, which makes monthly payment plans almost a necessity. Unfortunately, their rates can be significantly higher.
On the positive side such insurance companies often don’t require a substantial down payment except in extraordinary circumstances. If you can manage $100 or so a month, you should be able to put your car on the road.
Are there any car insurance companies whose monthly payment plans are better than others?
Like any product or service we buy, there will always be some companies we think are better than others. It’s up to the individual consumer to know what he’s looking for and what he would consider a good payment plan.
But as a general rule, just remember not to focus completely on the monthly premium.
First, you want to make sure you find a policy that provides you with the appropriate type and amount of coverage. What good will it do you to find the cheapest monthly payment option if the policy doesn’t pay the full value of your vehicle in case it’s totaled?
By the same token, perhaps your bank or other financial institution requires a certain level of coverage not provide by the cheapest plan.
Second, you’ll also need to consider customer service and support. Some insurance companies that offer to let you pay monthly for car insurance are also notorious for poor customer service.
In some cases, although not always, these companies know they have high-risk drivers with few choices, so they don’t go the extra mile to make sure they have five-star service. An internet search for customer reviews is usually a big help here.
Finally, think of car insurance with monthly payments as a temporary thing. The sooner you can solve whatever financial issues have put you in this position to begin with, the sooner you can get lower monthly premiums and preferential treatment.
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