Should You Pay Car Insurance in Full or Monthly?

Quick Answer

Some car insurance companies offer a discount if you pay your auto insurance premium in full instead of in monthly installments. Whether it makes sense to pay in full depends on your budget. If a large payment would leave you cash strapped, paying monthly could be the better option.

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When signing up for car insurance, you may notice there's an option to pay the premium in full or in monthly installments. Choosing to pay premiums in a lump sum could help you lock in a "pay in full" discount, but the upfront cost might be difficult to pay all at once. Read on for factors to consider when deciding whether to pay in full or monthly.

Benefits of Paying Car Insurance in Full

If you pay your car insurance premium upfront for the entire term (usually six months or a year), some insurance companies will reduce your premium. Progressive, Farmers and Allstate are examples of companies that may offer a discount for paying in full.

In 2021, drivers who paid premiums in full saved about 4.7% on average, according to Zebra, an insurance comparison website. And saving money isn't the only potential advantage of paying upfront. With the premium payment out of the way, you'll have one less monthly bill to worry about. This could free up cash for you to use on other expenses, such as debt payments or savings goals.

Disadvantages of Paying Car Insurance in Full

The main disadvantage of paying the premium all at once is that you need access to a large lump sum of cash, which can be difficult to budget for. Paying in full for each term may require some careful planning to ensure you have enough money to cover the bill when it's due.

Also, consider what would happen if your premium costs were to increase. If you get into an accident where you are at fault, for instance, your premium might jump to a point where making a lump sum payment could throw off your financial plan. Paying premiums in full could lower your overall cost, but it may not make sense for the big picture if it means having to dip into your emergency savings or put off other plans.

6 Ways to Save on Car Insurance

Paying your premium in full isn't the only way to save money on car insurance. Here are other steps you can take to pocket some savings:

  1. Set up autopay. Insurance providers may offer a discount if you make automatic bill payments or choose to receive digital copies of your policy documents.
  2. Bundle insurance. Companies may offer a loyalty discount if you purchase several insurance policies in one bundle. For example, bundling homeowners insurance or renters insurance with your car insurance could offer some savings.
  3. Raise your deductible. Increasing your deductible could lower your premium. Just make sure your deductible is an amount you can afford because this is what you may need to pay out of pocket if you file a claim.
  4. Reduce your coverage. Lowering collision or comprehensive coverage or removing extra perks like roadside assistance could cut your premium.
  5. Drive less. Putting a lot of miles on your car each year could increase your insurance rate. Driving less, if possible, could potentially lower your premium.
  6. Shop around. Car insurance providers offer different coverage options and rates, so comparing several quotes could help you find the most competitive rate for the coverage you need. Experian's auto insurance marketplace can match you with new policies.
  7. Maintain a clean driving record. Insurers often look at your driving record to consider your risk. You may be eligible for a discount if you have a record of safe driving, or if you've taken driver education courses.
  8. Improve your credit. Insurers are able to factor in your credit when setting insurance rates, though some states prohibit this practice. Providers may use a credit-based insurance score to predict the likelihood that you'll file an insurance claim.

You may also qualify for discounts if you're an active military service member or if you're affiliated with certain groups, such as AARP. Some insurers also offer a discount if you're over a certain age and have been accident-free for a period of time.

Is It Better to Pay Auto Insurance Monthly or in Full?

Ultimately, how to pay comes down to your financial situation. Paying your car insurance premium in full could save you some money—but paying a lump sum may not be feasible if it'll put a strain on your budget.

Paying credit accounts on time and keeping your debt balances low could strengthen your credit and help you qualify for better insurance quotes in the future. You can check your credit report and credit score for free through Experian and come up with a credit-building strategy that could help you pocket savings.