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Anyone interested in buying a new car needs to decide whether they want to pay cash for the vehicle or agree to finance the cost of the car over a period of time. Similarly, if you are buying auto insurance for your car, you have to decide whether you should make one payment for the entire year, or make arrangements to pay monthly installments over the course of the year.

There are both benefits and disadvantages to each particular way to pay. If you do not have the full amount of the premium for your auto insurance policy, than obviously, you will need to finance it over a number of months. If you can afford to come up with the full amount, is it to your benefit to do so?

Yearly Car Insurance Payment Benefits

• No need to spend time writing checks every month.

• No need to worry about being late on a payment.

• You can save the convenience fee associated with monthly payments.

• You may receive a discount off the full premium when you pay up front.

If you always have a million things to do and want to try to simplify your life, you can move just a little bit closer to that goal by making one car insurance payment instead of twelve. While it might only take you two minutes to write a check, you still have to keep track of when the bill is due and make sure the payment gets sent out on time.

When you finance your payments, your auto insurance carrier will normally charge you somewhere around $3.00 extra each month for processing costs. This convenience fee can add up over a full year.

Probably the best incentive to hand over a check for the annual premium when you purchase auto insurance is that you can realize a nice savings on the price of the policy if you had instead decided to make monthly payments. As an incentive to get all of the money for a one-year auto insurance policy, your carrier may give you a 10 percent discount. On a $1,000 premium, that is $100 in your pocket.

Monthly Car Insurance Payment Benefits

• You do not have to come up with a large sum of money to get auto insurance.

• You can use your money for some more pressing need.

• You always have the option of paying off the remaining premium at any time.

Without doubt, the most common reason for making monthly payments is that you cannot come up with the full amount of the annual premium when you need to buy car insurance. Perhaps you just used all your savings to buy a new car and now are cash poor?

You never want to spend every last dime you have on auto insurance.  If an emergency comes up, you will have some money that you might not have had if you paid the entire premium in one lump sum.

Finally, if you come up with some extra money in a few months, you can pay the remaining premium and usually it will be somewhat less than the total of the remaining monthly payments.

If you have the cash, it is almost always preferable to pay the annual car insurance premium when you buy your policy. It keeps things simple and you can put car insurance out of your mind for a year. However, monthly payments work well for many people because it allows them to spread out a large expense over a longer period of time.

Each person is different and may be better off choosing either the full payment option or the monthly payment option. The one thing everyone has in common is that if you drive, you need car insurance.

This article has been written by Steve Whiley, A writer for American Auto insurance.  Steve is an authority on car insurance topics and has been blogging for several years.

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