The best way to pay for car insurance

Millions of drivers are hit with extra charges for their car insurance because they pay for it monthly rather than annually.

 Most people don't have any choice but to split their annual quoted premium into 12 separate monthly payments - even though they will be charged a premium for doing so.
This is especially the case in the aftermath of a costly Christmas when finding a hefty lump sum can often prove impossible.

Here, we take a look at exactly how much extra paying monthly rather than annually can set you back, and how you can fight back... .

The true cost of monthly payments

Some insurers add up to 10.75% onto the quoted premium for the privilege of paying monthly, according to research carried out by MoneySupermarket

But savvy motorists who compare policies can avoid these increased costs and find a deal that won't break the bank.
For example, the same research showed that - in return for a little shopping around - motorists can reduce any 'extra' they are charged for a pay-monthly option down to just 5.34%.

Pete Harrison, car insurance expert at MoneySupermarket said: "Running a car is expensive enough with the rising costs of fuel, so being able to pay your insurance in more manageable monthly instalments is a useful way of helping affordability.

"However, it's crucial to make sure you're aware of the additional costs involved in doing this.  Motorists should scour the whole market to ensure they find the most reasonably priced deal."

Put the cost on 0% borrowing

One way of making the cost of your car insurance more manageable is to put the upfront annual cost on a purchase credit card which offers a generous initial interest-free period.

This way you can still pay off the premium in 12 monthly instalments - but you won't pay a penny in interest. The Marks and Spencer and Tesco Clubcard credit cards for example, both offer 15-month interest-free periods on purchases, along with various other benefits such as reward vouchers.

However, if you go down this route you'll need to be disciplined enough to pay off the entire balance before the interest-free period ends. If you don't, you'll be hit by much higher interest payments than you would have been charged by your motor insurer.

For example, after 15 months M&S and Tesco will charge 15.9% and 16.9% APR respectively. Bear in mind, the insurer may also charge a small fee for paying by credit card.

Rising premiums

Even if you do spread the cost of car insurance over 12 months, it can still be a huge drain on your finances. Car insurance premiums have soared in recent years, mainly as a result of a rise in minor personal injury claims, such as whiplash, which all have to be paid for.

In fact, the problem has become so bad that, this week, the House of Commons transport select committee called on insurers to carry out tougher medical tests on claimants before paying out.

It also recommended the government establish a separate ministerial committee with the sole objective of reducing the cost of motor insurance for the nation's drivers.

Until that time however, there are measures you can take yourself to keep the cost of your motor insurance premiums down.

Tricks to keep car insurance costs down

The type of car you drive will have a big impact on the price of your insurance, so avoid expensive cars and those with large engines if you are hoping for a reasonably-priced policy.

And, whatever car you own, it will be cheaper to insure if you keep it in a garage or on a driveway overnight, rather than parking it on the street.

Extra qualifications such as PassPlus are worth looking at too as with one of these under your belt an insurer may regard you as lower risk and quote your premium accordingly.

Simply being a careful driver and building up your No Claims Discount (NCD) will also help to keep costs down. If you have built up five years' NCDs, it can reduce your premiums by as much as 75%.

Finally, opting for a higher excess - which is your contribution to the first part of any claim - will also immediately reduce your premium. Make sure however, that you will always be able to afford the excess you've agreed should you ever have an accident and need to claim.