We get it: 'APR' is the sort of word that makes your eyes glaze over, your brain play elevator music and your cursor scroll to the ❌ in the top corner of your screen.
Unfortunately, it's a really important thing to get your head around. If not, you could end up paying hundreds of pounds extra on your car insurance every year.
The worst thing is, it's avoidable.
Let's break things down.
First things first: pay-monthly car insurance doesn't usually mean you're paying for one month's cover at a time. (One of the exceptions is our Subscription service! Jump to the end of this article to learn more about this, or click here.)
Instead, it means you're paying for a year's car insurance broken down into monthly payments.
But your monthly bill isn't as simple as just dividing the annual cost by 12.
Instead, you're essentially taking a loan on a year's car insurance - and paying it back per month, with added costs.
Instead of being like Netflix or Spotify, with regular payments for a month's worth of films or music, it's more like a credit agreement.
And like almost all credit agreements, you have to pay interest. And with some insurance companies, those interest rates are huge.
It also means your insurance is treated like a year-long policy in other ways. If you want to cancel it, you'll have to pay a fee. And your insurance will still usually automatically renew at the end of the year.
As with any loan, most insurance companies will run a hard credit check before they offer you monthly car insurance.
Because it's a hard credit check, it could affect your credit score.
If you have a bad credit score or patchy credit history, they might not offer you insurance. And if they do, you'll probably get a much higher APR.
So, how much could all this cost you? Because we had some time to kill, we crunched the numbers for you and got a bunch of quotes for different insurers.
We used the same profile for every quote. It was based on a driver who was:
With each insurer, we got two quotes: one based on a single lump sum payment, and one based on monthly instalments.
The price differences were pretty big. Check it out:
|Insurer||If we paid annually||If we paid monthly||Difference|
Which works out as an APR of…
(FYI, we got the quotes on the 23rd October 2020.)
All this means that car insurance APRs are around 10% higher than the average credit card. So it can make more sense to pay for a policy in one lump sum on your credit card. The interest will usually be lower.
Unfortunately, add-ons like breakdown cover, loss of keys and uninsured loss recovery can all also be more expensive if you pay monthly.
When you add these things to your policy, your insurer bundles the price for them together with the main policy. If you want to pay monthly for your policy, that means you're credit checked on (and interest is applied to) the whole package, including the add-ons.
This means you could end up paying around 30% more for everything on your policy - not just the basic car insurance.
To make matters worse, you'll usually have to pay fees to cancel breakdown cover separately, too. Again, it's because you're actually being given a year of cover and then paying it back in credit instalments.
That said, you can get flexible, pay-monthly breakdown cover too, that doesn't tend to involve a credit check. RAC offers one, for example. But it's still more expensive to pay monthly than paying for a whole year in one go.
While we're on the topic, here's a bunch of other hidden fees that insurance companies could charge you for.
We've hyperlinked a bunch of other useful guides, so just click through if you want some more info.
It's worth checking all the fees before you buy a policy. They can add hundreds to the cost of your car insurance.
Because we're feeling generous, we wrote a separate guide on how to avoid being caught out by these fees. Read it here.
Here's the shameless self-promotion. 🤭
Cuvva offers pay-monthly car insurance with no credit checks and no APR. You can also cancel it whenever you like without any fees. You'll only have to pay up to the end of that month.
We won't charge you to change any of your details, either. And your price won't go up for no reason at the end of the year. (We'll only change your price if your personal details change. No sneaky twice-the-price auto-renewals here.)
Sound good? Get a quote and get started today.