In the past, the only option for paying your auto insurance was to pay in full. However, now companies offer the option of paying in monthly installments. This is because most states require drivers to have insurance and monthly payments may be more affordable for most people. Just because you have the option of paying monthly, though, doesn’t mean it is the best option. Here’s a look at each payment option–in full or monthly installments–to see which makes the most sense financially.
Paying In Full
When you pay your premium in full, you usually pay for six months, although some companies may allow you to pay for a year. You will usually get a rather large discount because you will not have payment fees associated with the price and they knock some off for you just getting the payment out of the way. Discount range widely from company to company. Some companies will knock off hundreds of dollars while others may give you a fraction of that.
Besides the discount, it makes things easier on you. You don’t have to worry about making the payment each month or having the money in your account for it to be taken out. You don’t have to stress out that your insurance will be canceled either.
Paying in full can be ideal if you are a seasonal worker. You can pay when you have the money so you aren’t so strapped during your off season. It also is nice if you have a tight monthly budget. You can set aside money from each paycheck to pay your insurance premium in full and not have to mess with budgeting it each month.
Not everyone has the money to pay an insurance premium in full. This means they have to pay monthly. Paying monthly can be easier to budget than a large payment when paying in full. If you are living paycheck to paycheck, this may be the only option you can afford. Typically, companies will charge a fee for making monthly payments, which adds to the overall amount you will pay. So, in the end, it is more expensive to pay your auto insurance monthly.
Figuring out which is the best option is a personal decision. You have to look at your own finances and figure out what would work for your situation. Can you afford to save back and pay in full or will you be unable to swing it? Do you like spreading payments out over a period of time? Is that easier for you to budget? Monthly payments might be better for you.
Of course, if you are looking at this from a purely financial standpoint and want to choose the option that makes the best money sense, then you should always choose paying in full. This will save you money regardless. How much you save will depend on your insurance company, but that is something worth looking into when buying your policy.
Keep in mind that if you pay in full, you will still be saving money back each month to go towards that payment. So, you are not going to be saving money on your monthly budget by paying in full. You will simply be saving whatever discount you get.
The bottom line is you do not want to get yourself into a financial crunch. You need to be honest about what works for you. Do what makes the most sense in terms of your budget and finances. You can choose either option, but you want to be smart about it so you don’t end up in a budget crunch or create debt for yourself needlessly. In addition, making the smart decision ensures you maintain coverage and do not end up in trouble.