Nearly 20 million motorists are losing out because they choose to pay monthly for their car insurance rather than annually.
Typically, car insurers will charge a hefty premium for spreading the cost of insurance into monthly instalments.
Research from price comparison site GoCompare found that the mistake is hitting low-income households the hardest, with 47% of drivers in this bracket paying monthly compared to 29% of the highest earners.
Here we look at the best way to pay for your car insurance and how to make it happen.
Pay annually – if you can
Paying off the cost of insurance in one go is the best option.
For those that have racked up years of no claims and are over the age of 25, this may not be a problem, as typically this profile of driver will have smaller insurance premiums.
But for less experienced drivers, premiums can be sky-high.
One solution is to put away a small amount each month into a decent easy-access savings account to help with the cost come the time of renewal. Just £25 a month can bring you £300 closer to paying off your policy in one go.
For those with less foresight, there are other ways to cope with the cost of an annual premium if you don’t have the cash available.
A solid option is a 0% purchase credit card. This form of borrowing enables you some breathing space for a number of months before you start accruing interest on anything you buy.
If you do choose this route you will need to be very disciplined and pay off the entire balance before the interest-free period ends.
The simplest way to do this is to set up a monthly Direct Debit to pay off what you owe before interest kicks in.
Find the cheapest monthly option
Most insurers offer you the option of paying for your insurance monthly.
However, as we mentioned above choosing to pay monthly normally involves interest being added to your premium, meaning you pay back more in the long run for being able to spread the cost into more manageable payments.
Some insurers charge as much as 35% extra for the privilege.
But not all insurers charge a premium for monthly payments. Age UK, for example, allows motorists to pay monthly at no extra cost.
So, if you really can’t afford to pay annually it’s worth shopping around and comparing what insurers will charge you monthly to get the best deal.
Don’t put it off
A change to vehicle insurance law is helping to keep uninsured drivers off our roads. But it also means you can’t just stop driving your vehicle and wait until you have enough money to buy insurance.
Your vehicle must be insured at all times even if you don't plan to drive it around. The only way to avoid paying insurance is to get a Statutory Off-Road Notification (SORN) and to remove your vehicle from any public road.
The DVLA will be able to pick up that you have not insured your vehicle through the Motor Insurance Database.
If you don’t arrange a SORN when you should, you will be hit with a £100 penalty plus you could have your vehicle clamped, impounded or destroyed and face prosecution with a possible maximum fine of £1,000.