When you buy a policy, you are usually presented with several car insurance payment plans. The two most common options are paying in full at the beginning and paying in installments. If there were no cost to deferring payments most people would choose this option. However, there is often a clash between the insurers wanting the money in advance and customers preferring to delay.
Installment options offered by each company vary a bit. Large numbers of policyholders may choose one of the installment plans because they are easier to manage than paying the full premium at once. This option is more manageable, but it is quite possible that you end up paying more than your actual premium because of the interest and installment fees. Paying the whole premium at once might offer discounts as well.
Although most auto insurers will offer several options, you might need to check the charges and the length of time given. When motorists are not much flexible with how they can pay, they should check the possibilities when they get quotes. This can make one quote more attractive than the other.
What Is an Installment Fee for Car Insurance?
Do You Pay Car Insurance Every Month? You may think that your insurer is kindly allowing you to pay the premium in manageable bits. You should know that they usually add a charge called installment fee when you choose to spread your vehicle insurance premium over a period of time, rather than paying once at the start.
Most carriers add a fee for each installment but they may also add one charge on top of your quoted premium. Next time you need to pay for automobile insurance you keep this in mind and see if you could avoid paying such fee by paying in full and save money.
There are different auto insurance payment plans offered by various providers. For example, you can opt to pay higher monthly installments to complete the payment in just three to four months. If you pay within a longer time frame you may be able to divide the cost in smaller payments. Most insurers would want these payments to come out of your checking account automatically. Some firms may carry credit check on the customer before they approve longer period installments. They like to make sure that premium payments will not be missed.
How Does Car Insurance Payments Work?
Nearly all insurers offer flexible payment plans and options. You are normally expected to pay in full at the start of the policy. However, nearly all carriers allow spreading of payments. Your auto insurance activates with the first payment but it is probably cancelled if you miss the next payment. Then, you would be facing the dangers of driving without insurance. It is the policyholders’ responsibility to make sure vehicle insurance payments reach to their insurers.
Just because you are paying in installments, you cannot stop paying when you don’t want the policy anymore. Some insurers may just cancel your policy and leave it at that. But a few of them will report non-payment of the premium to credit agencies and that will affect your credit score and may be seen by other insurers when you get quotes next time. The best way of cancelling an insurance policy is by giving notice to your insurer.
Is Car Insurance Paid in Advance or Arrears?
Technically, auto insurance premium is due in full at the time of policy activation. So, any deferred payment plans are considered a credit facility offered by the carrier to the policyholder hence the fees and charges for such facility.
Whichever way premium is paid, insurers would make sure that you at least pay for time on risk in advance. For example, if it is a monthly payment plan you pay one month in advance. Most companies cancel vehicle insurance if you ever fall in arrears.
Can You Pay Car Insurance Monthly?
A few companies offer monthly premium payment plans to policyholders with good credit. However, they usually charge for this service. These additional charges make the monthly car insurance cost higher than the monthly breakdown if you were to pay the full premium at the start.
A few companies may offer accelerated payment plans that are similar to monthly plans but their plans usually have fewer payments and finish earlier. In return, their installment charges may be less. So, you should look at the costs before you agree to a premium payment plan.
For vehicle insurance companies, customers paying at the start are the best as they get assurance that they will not loose them easily. This is because customers who opt to pay on monthly basis might switch to another company offering lower rates. Also, sometimes people just stop paying the premium that will force the cancellation and related administration burden.
Disadvantages of Paying in Installments
There are some disadvantages of paying in installments. A major drawback is that you end up paying more than the quoted premium. Generally, there will be certain amount of interest charged for deferring the payment. Also, you will not get discounts. Apart from this, if you fail to make the payment in timely manner, your vehicle insurance policy will be cancelled either automatically or they will serve a short notice to that effect.
The best option is to keep checking if your bank account has enough money to pay the premium every month. Some companies also accept payment through money order or check. If this is your preferred mode of payment then go ahead, but make sure that the payment reaches the company in time.
If you are not confident about managing your auto insurance monthly installments, then the best option is to pay the full amount at the beginning as this eases the worries. As a result, you can ask for more discounts for upfront payment. Some companies can offer extra savings between 5 – 10% to improve their cash flow.
Interest charged for installment methods can be more expensive than credit card interests. Plus, you get about two months interest free period with most cards now. So, paying by card and managing to pay it back nicely can be another option.