It’s a question many people ask themselves every six months when their car insurance is up for renewal: Should you pay monthly or bi-annually? There are advantages and disadvantages to doing both, so it really depends on what your goals are. If you want the most affordable option with a smaller commitment, paying once a month might be best. But if you’re looking to minimize the number of payments and save money in interest over time, then going bi-annually may be worth it.
Monthly Car Insurance Premium
Paying monthly for car insurance is not too different than paying bi-annually, but it will require more time and attention on the part of the policyholder. If you choose this option, your annual premium will be divided by 12, and you’ll pay once a month for 12 months. You might receive a 5% discount if your insurer offers a discount for paying monthly.
Bi-Annual Car Insurance Premium
With a bi-annual car insurance policy, premiums are calculated as if you were going to be insured for six months each time your policy comes up for renewal. You might receive a 5% or similar discount if your insurer offers a discount for paying this way. Most insurers who offer this payment option will prefer you pay for the six months upfront.
Advantages of Paying a Monthly Car Insurance Premium
Paying monthly car insurance premiums has numerous merits, which include:
- You can budget better and spread the cost throughout the year. It can be easier to manage your money when you don’t have to come up with a large lump sum all at once.
- You can improve your credit score by making payments on time. If you’re applying for a loan or other financing, having an excellent credit score will help you qualify for terms that are more favorable to you.
- Some insurers offer discounts for paying monthly premiums. You might receive around 5% off your premium by choosing this option.
- Chances are you’re going to have to pay your insurance premium at some point, and if a larger lump sum comes during a month when you don’t have much money to spare, then paying monthly may be ideal for you.
- The monthly payments are very small, especially if you pay by credit or debit card, which might involve a processing fee.
- When you pay monthly, you are in fact paying the same amount that you would have paid for your full premium plus any interest that will be charged on it if you were to fully pay at the end of the year.
- Another added advantage of paying a monthly car insurance premium is that, instead of waiting for the mid-year to pay your premium, you can do it at the beginning of each month. This allows you to plan your expenses better because you know how much you are spending on car insurance.
The Drawbacks of Paying a Monthly Car Insurance Premium
- Since the bill is so small, you may not think twice about paying it. This means that you could easily forget to submit your payment on time and suffer the consequences, possibly in the form of late fees if your policy lapses.
- You won’t have as much money to put toward your other bills if your insurance payment is being split into smaller chunks. For example, you may have $90 coming out of your account every month for car insurance, but this may leave you with very little leftover income once you take care of the bills.
The Advantages of Paying a Bi-Annual Car Insurance Premium
Paying bi-annual car insurance premiums has different benefits:
- You end up paying less money in the long run. If you pay $100 bi-annually, it’s like making one payment of $54 after six months. That means you will be paying 30% less than if you had paid monthly, assuming a 5% discount for paying by installments.
- You may receive a discount for paying this way.
- It’s easier to manage your money with bi-annual payments because you can make one payment at the beginning of the year and then not worry about it again until six months later.
- Payment reminders will come around less often. Monthly payment plans mean you’ll be receiving payment reminders every month. Paying bi-annually means you’ll only receive two of these throughout the year.
The Drawbacks of Paying a Bi-Annual Car Insurance Premiums
You may miss out on some savings if you choose to pay your premiums bi-annually. This is because insurance providers that offer discounts for making monthly payments may not give you the same deal even if you opt to go with bi-annual payment intervals.
The big drawback is the amount of money that is withdrawn twice a year. This is significantly more than smaller monthly payments, and it may be trickier to budget for this than to take out a small amount every month for insurance if you have a tight budget.
Which One Is More Beneficial?
As you can see, both payment options have their own merits. It’s largely a matter of personal preference as to which one you choose. But if your insurer offers discounts for paying monthly or bi-annually, that should be the deciding factor for you. In most cases, bi-annual payments will cost you less money in the long run.
Factors that Determine Car Insurance Premium Rates
Car insurance agencies often use several factors to determine the rate that you must pay. Some of these include:
- Your age since younger people are statistically more likely to get into accidents.
- The type of car that you drive and where you live, as some cars are worth more than others and may be more expensive to insure.
- Your gender, as males are statistically more likely than females to get into accidents and, hence, pay higher rates.
- The number of miles that you will drive for your work or personal life and the number of days per month that you will need it for.
- Your credit score since a poor credit score means you’re a higher risk to insure.
- Your driving record and whether or not you have been in any accidents within the past few years.
As you can see, many different factors come into play when determining your monthly insurance rates. However, this doesn’t mean that you should give up hope if your current credit score or other factors are less than ideal. Simply shop around for different rates, and see which insurance provider offers the best deal.
If you’re looking for the best deals on car insurance, be sure to compare rates with at least three different providers before choosing one, and ask for the rate based on monthly payments as well as payments on a biannual basis so that you can make the right decision for your budget.
