It is common knowledge that car insurance can be paid for in monthly payments and many companies no longer require their customers to pay for the entire policy up front in one lump sum. But just as in every decision, there are pros and cons to paying monthly versus making a one-time payment. We’ll go over those pros and cons to help drivers make an informed decision that will suit their situation best.
Pros of Paying Monthly
One pro to paying for car insurance in a monthly payment cycle is it’s easier to afford for many drivers. The tight economic status most families are facing these days are forcing even tighter budgets and people searching for ways to cut back on their expenses. While paying for a policy in monthly payments isn’t necessarily cheaper than paying the whole premium, it is more manageable since the high cost is broken down. Paying $150 a month is much easier for many drivers to afford compared to paying $900 in one payment. In theory, a person could save the $150 a month to pay the $900 at once, but often people find themselves unable to keep that $150 untouched.
Another pro to making monthly payments is if the policyholder needs to cancel the policy due to moving or switching to another company. Remember, a driver can only legally cancel a policy under those circumstances. Otherwise, the driver will be without a policy and will be breaking the law by driving without auto insurance or another form of financial responsibility. When a policyholder has already paid the premium in full and needs to cancel the policy, they will have to wait for the insurer to send them a check for the remaining amount of premium unused. However, in monthly payments, the policyholder won’t have to wait for a huge check to be sent since they will only need to wait for the remaining month’s amount.
Cons of Paying Monthly
Paying in monthly payments can have its downfalls as well. For instance, paying monthly means having to remember to pay every month’s payment on time. When the payment is not made on time, a notice is mailed to the policyholder instructing them they only have a few days left before the insurer will terminate the policy due to non-payment. If the payment is not made, the policyholder will lose their coverage. But, if the policyholder makes the payment, the policy will remain in affect. A few ways to make sure the payment is made on time is by writing the due date on a calendar and sending the payment well before that date, or by sending the payment the day the bill is received. Another idea that may help is many insurers and even banks will send reminders of when a bill is due through email. This could be a great help for people who tend to forget things.
A second con to paying monthly is the fees that are needed to be paid. Insurers charge a processing fee each month when a policyholder chooses this form of payment, but there are no fees when the policyholder pays their premium all at once. These fees are usually quite minimal, sometimes ranging from $4 to $10, and don’t increase the total payment very much. However, some policyholders may feel spending $48 to $120 a year on fees to their insurer isn’t a wise way to spend money and would rather pay the premium in full to avoid such fees. There is a wide variety of opinions on this matter, and really the only person who knows whether or not the fees are worth paying monthly is the individual policyholder.
Third, many insurers require a policyholder who is making monthly payments to make a down payment first, and then pay the remaining balance of the premium cost in equal monthly payments. For instance, if the entire policy costs $700 for a 6 month contract, the insurer could require a 25% down payment, or $175 for the first month. Then, the policyholder will be charged the remaining $575 throughout the next five months of the policy, paying $115 each payment. At the end of the six month contract, the policyholder will have paid the entire $700. (These numbers are just used as an example; policies vary in price and insurers vary in the amount required for a down payment.) This may be a nuisance to some policyholders because the monthly payments aren’t equal and it’s harder to budget, especially for someone who lives paycheck to paycheck. Do make note that some insurers require smaller down payments, or none at all, which keep the monthly payments the same.
In some instances, it doesn’t matter which method of payment a policyholder chooses. No matter which way a driver pays for their insurance, their contract length will remain the same. Paying month to month does not mean the contract is month to month as well. The contract remains the same throughout the entire policy period and it doesn’t matter if the policyholder paid the premium in full or in monthly payments. Another item that doesn’t change is the total price of the coverage purchased. Buying $10,000 of uninsured motorist coverage will cost the same whether the policyholder chooses to pay in full or in monthly installments. However, remember that when choosing a monthly payment the total price will increase if paying month to month due to the processing fees even though the coverage costs the same.
Paying monthly is easier for many drivers to do when it comes to paying for their car insurance coverage. They prefer it over paying the premium in full because it is less money to worry about when paying bills, and they are able to overlook the cost of the fees. The personal preference of each policyholder will determine which method of payment is best for their family and financial circumstance. When drivers are not sure which method would suit them best, they can always try paying for their premium in monthly installments for one policy period and then pay the premium in full for the next policy period. This will show them the differences and they’ll be able to make a more informed decision. Let us help you find cheap month to month car insurance.
