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Car Insurance - Should You Pay by Direct Debt or Full Annual Payment

May 04, 2011

These days we are lucky enough to be give the option to pay for our car insurance in one single payment or broken down into monthly instalments.  There are not many insurance companies that will insist on having the full amount paid in one go.  However there are a number of advantages and disadvantages to each option and you should consider these before making your decision.  How you pay for your car insurance will depend on a number of things and everyone will probably find that one particular options suits them best.  Below are the advantages of each option to help you make up your mind.

The Advantages of Paying for Your Car Insurance by Direct Debit

  • Paying by monthly direct debit means that you will have smaller payments to make rather than having to pay out one single lump sum.
  • You will find it much easier to manage smaller payments each month and it can be taken from your bank without you having to worry about it. 
  • If you have more than one car then it might make more sense to pay for insurance by direct debit as it will be easier to manage these payments in smaller amounts.
  • When you pay by direct debit, it makes it much easier to switch to a new car insurance provider because you won’t have to wait for a rebate from the car insurance company.

The Advantages of Paying for Your Car Insurance in One Payment

  • Paying for car insurance in one annual lump sum means that you can just forget about the car insurance for a whole year until the renewal is due.
  • It is usually cheaper to pay for your car insurance in one go because when you pay by direct debit, there will be administration charges added to the premium.  You may also find that insurance companies will offer a discount if you pay in one instalment.

How you pay for your car insurance will depend on your own circumstances.  If you can afford to pay for your car insurance up front then you may find this a better option.  This is also wise if you are happy that you have found the best car insurance deal and you will not want to switch before the year is up. 

However if you do not have the money to pay for your car insurance in one instalment then having the opportunity to pay by monthly direct debit can be a relief.  Despite the fact that there will be administration fees added each month, it may still make more financial sense for you to pay this way.  And it will also give you the ability to look for a cheaper car insurance quote from other companies throughout the year.  If you do decide to switch you won’t be waiting weeks for the car insurance to refund you.