Car insurers that hike premiums most if you pay monthly

Drivers are being charged up to 36 per cent extra if they pay for car insurance monthly – yet others are paying just 6 per cent more.

The huge range of possible price hikes shows how differently insurers treat customers who want to pay their premiums in installments, something many motorists are completely unaware of.

CompareTheMarket this week said insurers charge drivers an extra 10 per cent for buying cover monthly, on average, compared to those paying one big premium upfront. This is because paying for insurance monthly involves taking out a form of loan, which includes repaying interest.

But that interest varies. Research into hundreds of insurance quotes by This is Money has discovered just how much extra different insurance firms can charge you for paying for cover monthly.

About time: Just choosing to pay for car insurance in installments means paying higher premiums than those that fund their cover upfront

But how much extra insurers charge you to pay premiums monthly does depend on the person and what sort of car they drive.

To give a sense of this, we have compared all the yearly and monthly premiums available for three example drivers – a 50-year-old man driving a 2022 Skoda Octavia, a 45-year-old woman with a Honda Jazz and a 35-year-old man driving an old Peugeot 207. 

The insurance firm that charged the biggest ‘installment tax’ in our tests was broker Boom Plus, which asked for an extra 36.2 per cent in order for a driver to pay monthly.

In our Peugeot 207 example, this meant the driver would have to pay £445 more per year or a total of £1,676. While this was by far the most expensive policy, several others would see the driver paying at least £200 per year more if they paid monthly. 

Our tests found that Admiral – and its sister brands Elephant, Bell, Diamond and Ford Insure – as well as More Than, frequently charged our example drivers more for paying in installments. 

Insurance pricing mysteries

While it is clear that the extra amounts insurers charge for monthly premium payments vary hugely, they are not set in stone. The exact amount insurers might charge for this varies from driver to driver.

There is also little clarity available on this, as how insurers set their premiums is a closely-guarded secret. That means we can observe interesting insurance pricing quirks, but cannot always explain them.

For example, some More Than policies charge drivers 20 to 25 per cent extra for paying monthly, much more than average. But this can drop to 7.19 per cent for other drivers in one of the tests run by This is Money – slightly below average.

Insurers can also show great consistency with how they price premiums for some drivers, then abandon that for others.

For example, a 35-year-old man driving a 2022 Skoda Octavia will be charged exactly 13.97 per cent extra for monthly premiums by each of the nine different insurance policies from Admiral’s brands.

That suggests there is a set consistency with Admiral’s pricing, but this vanishes when the same driver tries to insure a Peugeot 207 instead, and still pay monthly. 

This Peugeot driver faces five different levels of price increase from the Admiral insurance brands, albeit all between 26.27 per cent and 27.92 per cent.

But some insurers do seem to show great consistency with how they set their premium increases for monthly payments.

For example, both the AA and its secondary insurance brand, Beam, charged our three example drivers exactly 11.11 per cent extra to pay monthly rather than yearly.

The cheapest car insurer for monthly premiums

One insurer, Aviva, is not on price comparison websites, so consumers have to approach the firm directly to get a quote.

But in our tests it charged just 6.45 per cent extra for drivers wishing to pay monthly, the lowest out of all of the quotes.

Our Skoda Octavia driver was quoted £419 to pay yearly and £446.06 for monthly, and the Peugeot 207 driver was asked for £525 if paying in one chunk and £558.91 for installment payments. 

You can pay LESS for monthly premiums – but only with one firm 

One broker even bucked the trend and charged less for a driver paying monthly, compared to yearly. 

The broker, Wise Driving, quoted £673.40 for our Honda Jazz driver to pay for insurance monthly, 3.5 per cent less than the yearly quote.

Wise Driving has not responded to requests for an explanation.

But the reason could be that the company only does telematics insurance, where premiums vary naturally depending on how you drive, which might mean the initial quotes are fairly loose.

Look out when converting quotes

One thing to watch out for is converting the cheapest yearly insurance premium to monthly chunks and assuming it will be the cheapest option.

The cheapest insurer for you on an annual policy may not be the same as on an monthly one.

For example, the cheapest yearly premium for our Honda Jazz driver was £648.95 a year, from Marshmallow Essential – excluding telematics policies, which can appear cheaper but also vary in price depending on how you drive.

But if the Honda driver would rather pay monthly, going with Marshmallow means paying £780.82 a month – 20.3 per cent extra.

The cost of car insurance is going up – and those paying monthly face even higher bills

That is no longer the cheapest quote – in fact it is only the third cheapest. If the driver still wants to pay monthly they would be better off going with a quote from Wise Driving and saving more than £100 a month by paying £673.40.  

All drivers face rising car insurance costs, with premiums reaching a three-year high. But these bills are going up fastest for those paying monthly.

CompareTheMarket said the average cost of paying annually for car insurance has increased by £71 year-on-year, while the cost of paying monthly has risen by £83 on average.

What the insurance firms say

An Admiral Group spokesperson said: ‘Without being able to investigate the sample quotes This is Money has run, it’s not possible to comment on the difference in price between the single payment quote and if payments were made monthly.

‘It’s important to remember that offering payment by monthly instalment is a form of credit and our charge for this can vary. The majority of customers pay 10.9 per cent of their motor premium spread across the policy term which translates to an APR of approximately 20 per cent.

‘For each individual policy, the full breakdown and exact figures for the charge for credit and APR are given so that the customer can make an informed decision with regards to their options.’

A More Than spokesperson said: ‘We offer customers the choice to pay their premium on a monthly or annual basis, in a way that best suits their individual circumstances. Generally, paying your premium on an annual basis will be cheaper, because it isn’t subject to interest. 

‘Pricing can vary from customer to customer depending on a range of factors, such as their level of risk and the type of vehicle they drive. We regularly review our pricing to ensure it is fair and competitive in the market.’

This post first appeared on Dailymail.co.uk