Prefer to pay for your annual car insurance policy on a month to month basis? Some insurers accept payments spread over up to 12 months, with no large upfront deposit required. There are also a number of price comparison sites which offer quotes for both monthly and yearly payments; but which, if any, are the cheapest? We ran some tests to put it to the test, so click here to find out!

Does it cost more to pay by instalments?

Almost invariably: yes. The people in our initial test run would have paid an extra £66.28 on average for paying over 12 months, but this varied enormously from as little as £4 to a massive £289. Despite a number of claims to the contrary we wouldn't find a single instance when paying over 12 months was no dearer than yearly payment. This was not the case a couple of years ago, when there were interest-free offers available.

It is generally accepted that, in 2018, most drivers making regular payments were charged an extra 11% over and above the basic premium. Our own calculated figure was a little higher at 13.9%. However, statistically, our sample was fairly small and it is possible that a far larger test could give different figures.

Are there cheaper ways of paying?

It is important to remember that the true APR is not 11% (if we accept the popular figure) because you would be paying off the initial sum gradually over the year. You are charged the full payment, including charges and interest, upfront, whereas a true APR is only payable on the outstanding balance, which after six months would be approximately half of the original sum. A flat rate of 11% is actually an APR of 19.7%. If our own calculated figure of 13.9% is correct, then that expands to an APR of 24.7%. So, if you can get a loan at less than these figures you are likely to save money; if you can get an interest-free credit card for a year then so much the better (provided that you keep up the payments religiously, and don't trigger a penalty, of course).

Should I buy online or by telephone?

If you buy online you only have to make one application and you could potentially receive offers from dozens of competing companies, most of whom will only require a low deposit. If you buy through a broker they will not have as many insurers for you to choose from but you may benefit from their personal attention to your own unique needs. They may also have access to smaller, more specialised insurers that the big price comparison companies ignore.

What should I be careful of?

It is important to remember that you would be buying an annual policy and you will be expected to make all of the repayments. A minority of motorists, who only need cover for a few months, buy their policies on credit and then cancel their repayments when they want to cancel them. Insurers are wise to this (as they are to everything else that could cost them money) and you will inevitably find that buried amongst the small print there will be penalty clauses which could make this a very expensive thing to do.

If you do not intend to keep the policy for its full term do make sure that you read all the terms and conditions carefully before taking it out; some of the cheapest insurers charge the highest prices for extras, alterations and cancellations, so you need to be aware that the initial premium can sometimes be only the start of the expenses of an insurance policy.

Conclusion

Motor insurance is now a very highly competitive market and with up to 45% of motorists opting for so-called 'no deposit' car insurance (there is actually a deposit in every case; the first monthly payment is always asked for in advance) there is no shortage of insurers who offer it.

You need to bear in mind, however, that it will almost certainly cost you more, and you may wish to look at our research page to get an idea of just how much this could be. Looking for quotes? Click here