Paying annually or monthly for car insurance

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A woman driving a car

When buying car insurance, you’ll have the choice of paying for it annually or spreading the cost across monthly payments via Direct Debit. Each approach has its upsides and downsides.

We discuss what to consider when buying annual versus monthly car insurance, including the potential implications for your credit score.

Is it cheaper to pay annually or monthly for car insurance?

With like-for-like policies, it’s cheaper to pay annually. Monthly payments will cost more than paying for the annual policy in one go.

To pay monthly, we'll need to lend you the total cost of your premium, which is known as fixed sum credit. You pay this back to us monthly and, since it's a loan, you'll pay interest. 

But there are other advantages and disadvantages when considering whether to pay for your car insurance annually or monthly.

Paying annually: pros and cons

Paying annually is cheaper overall, as you don’t have to pay interest. But there are other advantages:

  • once you’ve paid, you won’t have to think about your car insurance again for another year
  • your insurer will only run a soft credit check which won’t show up on your credit report – so it won’t affect your creditworthiness

The main disadvantage is you’ll have to pay more in one go. But if you can afford to spare the money for the one-off payment, it’ll be better for your bank balance overall. 

Paying monthly: pros and cons


  • Affordability – car insurance can be expensive, especially for younger drivers, and paying potentially thousands of pounds in one go isn’t possible for all
  • Manageable payments – spreading the cost over monthly payments puts less of a strain on other areas of your budget, so you could have better control over your finances
  • Improving your credit score – lenders trust you more if you make your repayments on time


  • More expensive overall – because of the interest, you’ll end up paying more back
  • Negatively affecting your credit score – if you miss payments, it can negatively impact your credit score: missed payments can show up on your credit file for up to six years and affect other applications for credit, like taking out a mortgage
  • The danger of missing payments – if you do miss a payment, you need to make sure your insurance is in place before driving your vehicle: if your policy is cancelled, you’d be committing an offence by driving without insurance
  • Showing up your credit file – the application for monthly insurance will show up in your credit file; this isn’t necessarily a bad thing, but it’s worth noting

Do I have to pay a deposit when I take out car insurance?

Car insurance policies don’t need a deposit as such. If you see ‘no deposit car insurance’ advertised, it just means that this kind of policy is paid for monthly.

But you do need to make an upfront payment before being insured, regardless of your policy. 

If you’re paying monthly, this will usually be 20% of the annual total, which is paid in the first month, with the remaining 80% spread over the year.

Can I get car insurance with a low credit score?

You can get car insurance even if you have a low credit score. 

This is especially true if you plan to pay for your policy annually. Your insurer will check your credit report, but it’ll be a soft search to confirm your identity and limit the chances of fraud.

A low credit score  could limit your options if you want to pay monthly. This is because you’ll need a full credit check, with insurance providers looking at your credit report in greater detail. 

If a provider is concerned that you may be unable to make your payments, they may decline to offer you insurance.

Find out more about credit scores, including how to improve a low credit score.

How to reduce the cost of your car insurance

While making monthly car insurance payments is more affordable in the short term, it’ll cost you more in the long run. A more sustainable approach could be to try to reduce your car insurance costs. 

For instance, if you’re a young driver, you might find that a black box policy, which monitors your driving habits and ability, could reduce the price of your car insurance.

Find out more about how to reduce your car insurance premium here.

Great car insurance options for the whole family