Should you pay car insurance in installments?

When you purchase car insurance, you usually get to decide whether you want to pay for your policy in full or in installments. Although you can typically get a discount for paying your policy in full, not everyone can afford to do that. But while opting for installments might be more affordable initially, it could also cost you a bit more in the long run due to additional fees. So do you pay car insurance monthly or is a lump sum a better option? Bankrate’s insurance editorial team breaks down both car insurance payment methods so you can determine what will work best for your budget. 

Is it better to pay car insurance monthly or in full?

Should you pay your car insurance in full or in monthly installments? The answer is: it depends. Your financial situation, how you prefer to pay your bills and how likely you are to switch companies midterm are all determining factors when choosing a car insurance payment plan.

If paying your premium in full causes financial hardship, you may want to break your premium into manageable chunks. On average, drivers in the U.S. spend $2,348 per year for a full coverage policy (as of September 2024), so car insurance is a hefty bill for many people. You don’t want to pay your premium in full only to need that money later for an unexpected expense, so it helps to consider your full financial picture when making your decision.

Consider installment fees

Installment fees or service charges are another consideration when choosing a car insurance payment plan. Credit card companies and financial institutions usually charge a fee to process payments, and many insurance companies recoup this by adding an installment fee to your monthly bill. Typically, these installment fees are small, but they are also unregulated. An insurance company can set its own installment fee amount, even if the installment fee is higher than what the company is being charged to process your payment.

Consider potential savings

Some insurance companies offer a pay-in-full discount that can help make paying your premium as a lump sum more beneficial. If you can afford to pay your premium upfront and your company provides a discount for doing so, an annual payment plan might be a good choice for you. However, if you can’t afford to pay the annual premium in cash or from a debit account and will be relying on a credit card, consider the added cost of interest payments. Paying with a credit card will likely cut into any money you save by paying your premium at once.

Consider your bill payment preferences

Deciding whether you want to pay in installments or as a lump sum also depends on how you like to pay your bills. Some people find it inconvenient to pay a monthly bill and would instead prefer to make one payment for the entire year. Others may find it difficult to remember to pay their annual premium since it only comes up once a year. Whichever option you choose, it’s essential to make your insurance payment on time to avoid a lapse in coverage and possible late payment fees.

Consider the likelihood of switching carriers

Finally, think about how likely it is that you will switch insurance companies in the middle of your policy term before choosing a payment plan. It can be easier to cancel your policy midterm if you are on a monthly payment plan because of how policy refunds are structured. Under this arrangement, you can always shop around for cheaper car insurance if you need.

When you cancel a policy midterm, your insurance company will either give you a prorated refund or a prorated bill, depending on where you are in your billing cycle. Because you paid in advance, your refund amount will likely be larger if you’re on an annual payment plan. Some companies can take up to 14 business days to issue your refund, tying up what could be a substantial amount of money. This refund process could create difficulties in coming up with your first payment for a policy with a new car insurance company.

Pros and cons of paying car insurance monthly vs. in full

Deciding whether to pay your car insurance monthly or in full (which usually means paying for six months or one year up front) is a personal preference, but there are some things to consider that can help you decide. For many drivers, the decision boils down to whether or not they can afford the lump sum payment. 

Consider these key points before you decide how to pay:

How to save on car insurance

If you want to lower the amount you are paying for your car insurance, but can’t afford to avoid installment fees by paying your premium in full, there may be other steps you can take to lower your premium.

• Set up autopay
  

  If you’re making monthly installment payments, signing up for autopay not only makes it easier but may also qualify you for a small discount. Just authorize the company to pull your payment from a checking or savings account every month and you won’t have to remember to log in and pay.

• Shop around
  

  Insurance premiums are based on numerous personal factors and rates vary depending on the insurance provider. To find the cheapest car insurance for you, request quotes from several providers. Remember to request the same coverage types and amounts so you can do an even comparison. It might be useful to shop around whenever your policy comes up for renewal to see if you are getting the best deal for your situation.

• Bundle your insurance policies
  

  For drivers who also have home, renters or life insurance, bundling one of those policies with your car insurance will typically earn you a solid discount. Policyholders who bundle also enjoy the ease of dealing with one insurance provider.

• Maintain a clean driving record
  

  Few things raise your insurance premium like getting moving violations on your driving record. Insurance companies access your driving record at every renewal period and usually charge more if you’ve received a violation. Most infractions stay on your license for three to five years, so you may see elevated insurance premiums for a few years.

• Raise your deductible
  

  If you have full coverage car insurance, which typically includes both comprehensive and collision coverage, you can save money on your insurance premium by raising your deductibles, which is the amount of money you pay out of pocket towards a claim. Keep in mind that you should always choose a deductible that you feel comfortable paying on short notice. State-mandates liability coverage car insurance does not have deductibles.

• Reduce your coverage
  

  This isn’t an option to take lightly, but reducing your coverage could lower your insurance premium. Generally, experts recommend purchasing more coverage than the state minimums, but if you’re struggling to afford your current level of coverage, you might look at your current limits with your agent to see if it’s wise to reduce them. Additionally, some coverage types, like comprehensive coverage on an older vehicle, might not make financial sense anymore. Speak with your insurance agent to ensure that you still have the coverage you need if you are considering making adjustments.

Frequently asked questions

• What is the best car insurance company?
  

  The best car insurance company varies depending on which insurer offers the coverage you need at a rate that fits your budget. Quotes will vary based on driving record, car type, mileage driven per year, state and many other factors. You’ll want to shop around and compare options to see which company offers you the best premium based on your personal information and coverage selections.

• Is it better to pay in full or pay car insurance by installment?
  

  Generally, you’ll pay less for your policy if you can pay in full. But if paying a large lump sum upfront would put you in a tight financial spot — say, leave you unable to pay your car insurance deductible — making car insurance monthly payments may be a better option for you. Look over your budget so you know what you can afford.

• Can you change your insurance billing to monthly payments?
  

  Yes; you can typically change your payment plan at any time during your policy period, although you might think about doing it when your policy renews. This is also a good time to shop around for other policies to make sure you’re still getting the best price for your coverage needs.

• Can you pay car insurance yearly?
  

  That depends on whether you have a six-month or annual car insurance policy. When you purchase a policy, you’ll usually have the option to choose installment payments or full payment. Although many insurers offer a discount for paying the premium in full, you might be able to get a small discount for setting up autopay or going paperless.

• How can I save money on my car insurance if I can’t pay in full?
  

  Even if you don’t qualify for a paid-in-full discount, your car insurance company may have other car insurance discounts that you’re eligible for. This may include discounts for signing up for autopay, choosing to make payments on a biannual or quarterly basis, and discounts for long periods without an accident or insurance claim. You could ask your agent to review your policy for savings opportunities that may be overlooked.