Should you pay car insurance in installments?
Key takeaways
- Paying your policy in full could save you money if your insurance provider offers a paid-in-full discount.
- Paying for your car insurance in monthly installments might make it easier to manage your budget, but you might also pay extra fees if you don’t pay for your policy up front.
- You might be able to save money on car insurance by comparing quotes, adjusting your coverage and taking advantage of discounts.
When you purchase car insurance, you usually get to decide whether you want to pay for your policy in full or in installments. Although you can typically get a discount for paying your policy in full, not everyone can afford to do that. But while opting for installments might be more affordable initially, it could also cost you a bit more in the long run due to additional fees. So do you pay car insurance monthly or is a lump sum a better option? Bankrate’s insurance editorial team breaks down both car insurance payment methods so you can determine what will work best for your budget.
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Powered by Coverage.com (NPN: 19966249)
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
Is it better to pay car insurance monthly or in full?
Should you pay your car insurance in full or in monthly installments? The answer is: it depends. Your financial situation, how you prefer to pay your bills and how likely you are to switch companies midterm are all determining factors when choosing a car insurance payment plan.
If paying your premium in full causes financial hardship, you may want to break your premium into manageable chunks. On average, drivers in the U.S. spend $2,348 per year for a full coverage policy (as of September 2024), so car insurance is a hefty bill for many people. You don’t want to pay your premium in full only to need that money later for an unexpected expense, so it helps to consider your full financial picture when making your decision.
Consider installment fees
Installment fees or service charges are another consideration when choosing a car insurance payment plan. Credit card companies and financial institutions usually charge a fee to process payments, and many insurance companies recoup this by adding an installment fee to your monthly bill. Typically, these installment fees are small, but they are also unregulated. An insurance company can set its own installment fee amount, even if the installment fee is higher than what the company is being charged to process your payment.
Consider potential savings
Some insurance companies offer a pay-in-full discount that can help make paying your premium as a lump sum more beneficial. If you can afford to pay your premium upfront and your company provides a discount for doing so, an annual payment plan might be a good choice for you. However, if you can’t afford to pay the annual premium in cash or from a debit account and will be relying on a credit card, consider the added cost of interest payments. Paying with a credit card will likely cut into any money you save by paying your premium at once.
Consider your bill payment preferences
Deciding whether you want to pay in installments or as a lump sum also depends on how you like to pay your bills. Some people find it inconvenient to pay a monthly bill and would instead prefer to make one payment for the entire year. Others may find it difficult to remember to pay their annual premium since it only comes up once a year. Whichever option you choose, it’s essential to make your insurance payment on time to avoid a lapse in coverage and possible late payment fees.
Consider the likelihood of switching carriers
Finally, think about how likely it is that you will switch insurance companies in the middle of your policy term before choosing a payment plan. It can be easier to cancel your policy midterm if you are on a monthly payment plan because of how policy refunds are structured. Under this arrangement, you can always shop around for cheaper car insurance if you need.
When you cancel a policy midterm, your insurance company will either give you a prorated refund or a prorated bill, depending on where you are in your billing cycle. Because you paid in advance, your refund amount will likely be larger if you’re on an annual payment plan. Some companies can take up to 14 business days to issue your refund, tying up what could be a substantial amount of money. This refund process could create difficulties in coming up with your first payment for a policy with a new car insurance company.
Pros and cons of paying car insurance monthly vs. in full
Deciding whether to pay your car insurance monthly or in full (which usually means paying for six months or one year up front) is a personal preference, but there are some things to consider that can help you decide. For many drivers, the decision boils down to whether or not they can afford the lump sum payment.
Consider these key points before you decide how to pay:
| Pros | Cons | |
|---|---|---|
| Paying monthly | Smaller payments may be easier to budget It may be easier to switch companies if you haven’t paid in full yet |
No pay-in-full discount Potential installment fees or service charges |
| Paying in full | Policyholders may earn a small discount No installment fees or service charges |
Might be harder to budget for a bigger expense More money would be tied up while waiting for a refund if you cancel or switch your policy |
How to save on car insurance
If you want to lower the amount you are paying for your car insurance, but can’t afford to avoid installment fees by paying your premium in full, there may be other steps you can take to lower your premium.
Frequently asked questions
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