All you need to know about car insurance and bad credit [Sponsored]

Some people in big cities with a good transport network can generally get by without a car. For the rest of us, vehicle ownership is not so much a luxury as a necessity. Motoring, naturally, comes with costs, some of which are a legal requirement. Motor insurance is one of them, along with tax and the MOT. However, motoring is not cheap. When you have a history of bad credit, loan and insurance products are often a major stumbling block.

Pay monthly car insurance to spread the cost

You can’t not have insurance, that’s against the law. To make it easier for car owners, insurers offer multiple ways to pay. You may pay the full balance as a lump sum at the start of the policy term. This method is the most common. Alternatives include paying in monthly instalments, typically over 10 or 12 months. Some choices offer four quarterly instalments or with a deposit for lower monthly payments. This spreading of the insurance cost suits many people including new drivers and low earners.

Photo: Freepik / Jcomp

It’s easy to forget that when a person applies to spread the cost of their car insurance, this is a form of borrowing. They are effectively requesting a loan to cover the cost of the premium which they promise to pay back over the course of the year. Therefore, paying this way, will incur higher cost; interest is added to the cost of the premium. Many choose this option because they cannot pay the premium as a lump sum.

Why are monthly instalment car insurance policies problematic with bad credit?

This is where people with a poor credit, and young or new drivers, tend to struggle. In most cases, they are likely to experience refusal for most forms of credit. When it comes to forms of insurance mandated by law such as car insurance, it can hinder the need to get on the road. Some insurers may refuse payment in instalments and insist that you pay the full balance to guarantee coverage. This can be problematic if you have money struggles that require a credit application in the first place.

Some providers require a deposit

Even where you are still permitted the option of monthly instalments, they may insist on a substantial lump sum as deposit to offset the perceived risk of the policy holder defaulting. Typically, you might be expected to pay around a 20% deposit, which would mean a £300 deposit for a £1,500 premium. When on a tight budget, with no savings and stretched finances, it may be difficult to raise even the cost of a deposit, especially when hoping to spread the cost of the premium equally.

Your premium may be higher

Others might find that their premium is considerably higher when they have bad credit than it would otherwise have been. Essentially, the people with the lowest financial flexibility pay more. When a person applies for any car insurance, regardless of how they intend to pay, the insurer checks their credit score. Those with a low credit score are seen as a higher risk. They are perceived as having a much higher likelihood of being in an accident. Even if they have a history of safe driving and have no driving convictions, the poor credit score alone can negatively impact the premium.

I have a bad credit score, what are my options?

As car insurance is a legal requirement, you won’t continually experience rejection, either for a policy or for a pay monthly plan. There are always options available to you.

Pay the full balance

The most common form of insurance rejection that a person with bad credit might experience is refusal of the pay monthly plan. In this case, paying the full balance as a one-off payment for the premium is all it would take to ensure coverage. If you really cannot afford to not spread the cost, put it on an existing credit card and pay monthly that way. The downside is, of course, the higher interest rate.

Change your vehicle

It’s well-documented that some cars have automatic higher insurance costs. A large part of the premium calculation is based on the type of car you drive. If your vehicle is sporty or has a large engine, this will negatively impact your ability to apply for car insurance. The higher the cost and the lower your credit score, the higher the risk of outright rejection. There is also a high risk of required payment of a lump sum. When the cost is thousands of pounds, this may be out of the question.

Take out a policy designed for people with poor credit

When the other two options are not possible, the final option may suit. These policies are designed for people with a poor or no credit history who need car insurance. If you have been refused car insurance or refused a pay monthly plan and cannot afford to pay the balance. This may be the ideal choice for you. They will also help to repair your poor credit rating.
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