When you buy a policy, you are usually presented with several auto insurance payment plans. The two most common options are paying in full at the beginning and in installments. If there were no cost to deferring 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.
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 spending more than your actual premium because of the interest and fees. Settling 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 money, they should check their options when they get quotes. This can make one quote more attractive than the other.
What Is an Installment Fee for Car Insurance?
You may think that your insurer is kindly allowing you to settle the cost in manageable bits. You should know that they usually add a charge called installment fee when you choose to spread the cost over a period of time, rather than once.
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 the fee by dealing with it at once.
There are different vehicle insurance payment plans offered by various providers. For example, you can opt to pay higher monthly installments to settle it in just three to four months. If you spread it in a longer time frame you may be able to divide the cost in smaller portions. Most insurers would want the money to come out of your checking account automatically. Some firms may carry credit check on the customer before they approve longer period. They like to make sure that premium will not be missed.
How Does Car Insurance Payments Work?
Nearly all insurers offer flexible options. You are normally expected to pay it all at the start of the policy. However, nearly all carriers allow spreading of premiums. Your auto insurance activates with the first payment but it is probably cancelled if you miss the next one. Then, you would be facing the dangers of driving without insurance. It is the policyholders’ responsibility to make sure the money reaches to their insurers.
Just because you are paying in installments, you cannot stop it 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 a policy is by giving notice to your insurer.
Is Car Insurance Paid in Advance or Arrears?
Technically, premium is due in full at the time of policy activation. So, any deferred 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 at least time on risk is settled in advance. For example, if it is a monthly plan you pay one month in advance. Most companies cancel vehicle insurance if you ever fall in arrears.
Can You Pay Automobile 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 of overall cost.
A few companies may offer accelerated 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 plan.
For 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 for monthly option 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
A major drawback is that you end up spending more than the quoted premium. Generally, there will be certain amount of interest charged for deferring. Also, you will not get discounts. Apart from this, if you fail to make the payment in timely manner, your 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 money order or check. If this is your choice 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 get it over with it 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, settling by card and managing it nicely can be another option.