Let's get something straight right away: there are two types of pay-monthly car insurance policies.
First, there's traditional (read: out-dated) pay-monthly car insurance. This is basically just an annual policy paid each month by direct debit. It's a bit like taking out a loan - with interest added on top. It's expensive and exploitative - basically, you end up paying more for the flexibility you get.
Cuvva hated this, so we introduced a new type of pay-monthly car insurance, one where you only pay for a month's worth of car insurance at a time. No deposits, no cancellation fees, no APR - you can join or quit at any time, with no hidden fees or penalties. It's called subscription.
(Also, just so we're clear, paying monthly for a long-term car insurance policy isn't the same as getting temporary car insurance for a month. Temporary car insurance works very differently.)
When you pay monthly for traditional, out-dated annual policies, you're not actually buying one month's worth of insurance at a time.
You're technically getting a full year's worth of insurance at once. But you're getting it on credit. And the monthly payments you make are like repayments.
And, like most loans, those repayments come with added interest, which makes paying monthly (a lot) more expensive.
It also means your car insurance is treated like a full annual policy in other ways - like cancelling. There's no added flexibility there.
And it means that, like any other time you take out credit, you'll have to go through a credit check.
Plus, a lot of insurers will also charge you a deposit if you want to pay monthly, so you might end up paying a pretty hefty lump sum anyway.
In some cases, the amount of interest is like having a loan with a 40% APR. MoneySavingExpert once listed (the worst offenders.)
But generally, the APR on paying monthly is between 15-35%.
In some cases, it would be cheaper to take out a loan, use that to pay for your car insurance in one annual instalment, and then make repayments on the original loan.
Again, this is different to the fairer monthly policy Cuvva has introduced - no fees, APR, or tie-ins. 👍
With Cuvva's monthly subscription, you can cancel at any time, with no penalties, fees or restrictions. Easy!
But with annual cover paid monthly, your policy is treated like an annual policy when you try to cancel it.
And that's not necessarily a good thing. Here's why.
When you cancel your car insurance, you usually have to pay an admin fee. And then you get a refund on the remaining months on your car insurance.
The fee usually goes up the longer you have left on your policy.
So, if you're paying monthly in this way, your cancellation fee will be based on the number of months left on your car insurance policy until the end of the year. Not the days left before the end of the month.
In other words, your cancellation fee is worked out as if you'd already bought a full year of car insurance. Even though it's actually cost you more because you're paying monthly.
(If you do cancel a pay-monthly car insurance policy, make sure you tell your insurer if your bank details change. Cancelling your direct debit doesn't cancel the policy. It just means your insurer might cancel your policy for non-payment. Which can be pretty bad.)
Again, here's a quick disclaimer - Cuvva's monthly car insurance has no deposits!
But if you pay monthly for an annual policy with traditional insurers, it usually comes with a pretty hefty upfront deposit. This is usually about 20% of the total price of the policy, with the rest of the payments spread out over the next 10 months or so.
But different insurers will charge different amounts as a deposit. There's no fixed percentage amount.
Whenever you take out credit, you'll have to go through a credit check. And that's no different for these types of old-fashioned car insurance.
(Again - did you guess? - Cuvva's policy doesn't require this!)
When you pay monthly, other insurers will carry out what's called a "hard check" on your credit file. That means other creditors will be able to see that check on your file, and it means your credit score can go down if they decide not to insure you.
If you have a bad credit score, you might get rejected. So you might not be able to pay for your insurance monthly anyway.
Even if you don't get rejected, having a bad credit score can mean your APR goes up. So you could end up paying even more for your car insurance because of your credit history.
In most cases, if you make a claim when you pay monthly for car insurance, you'll have to pay for the rest of the year in one lump sum if you want to cancel.
(One more time for those at the back - this is just for traditional policies. Cuvva's monthly policy doesn't work this way.)
This isn't always the case - and you'd need to speak to your insurer to get the details - but it's pretty common.
You'll also (usually) lose your no claims bonus for the entire year if you have to make a claim.
Again, this is because paying monthly for car insurance doesn't actually mean you buy a month's car insurance at a time. You're buying a full year's insurance, taking out a loan to cover it, and then paying back that loan one month at a time.
You may have noticed some incredibly subtle pliugs and clarifications in this article… here's our final say on our pay-monthly policy.
Traditional monthly payments, which are basically just loans on an annual policy, just isn't fair on drivers who can't afford to pay up front. So we created a new kind of pay-monthly car insurance, with no deposits, interest, or cancellation fees.
Ours doesn't work like a loan. Instead, think of it more like a subscription - a Netflix or Spotify for car insurance.
Plus, you could save up to 1/3 on your car insurance with Smart Pricing.
Whatever you're after, you can get a quote in minutes.