How to budget for your car insurance premium

If you’ve traded up to a faster car or a higher spec vehicle, you could find that you can no longer cover the cost of insuring it. Going from an everyday car from a manufacturer like Ford or Vauxhall to something from a luxury car maker like BMW or Mercedes, could see your insurance premium soar. If that’s the case, you’ll need to know how to budget for car insurance.

Creating a budget

Owning a new car is a financial commitment that you enter into for many years. If you haven’t done your sums, you might be overstretching your finances in order to afford the new car.

Perhaps there are running costs you didn’t expect like the cost of fuel, the price of the insurance or the service charges that are swallowing your funds. Making a budget of all your outgoings and your income, will help you see where you have spare capacity. Working out how to budget for car insurance could even shed light on other areas of your finance.

Spread sheet

Putting your figures down on a spread sheet is the clearest way to get a view of your income and expenses. It might sound like the sort of thing an accountant would do, but it’s the best way of seeing where your money’s going. An expensive insurance bills can be part of the monthly outgoings if you opt to pay by Direct Debit or it could be paid in one lump sum.

The cheapest option will always be to pay for it up-front because insurers load interest rates onto their premiums if you pay monthly, but you financial situation may make that impossible.

Credit card

Now you know how to budget for car insurance, you should be fine to pay it without breaking the bank. But if you don’t earn your money on a monthly basis, you could use your credit card to cover the cost. Some insurance firms add so much interest to their monthly instalment plans that paying by credit card actually saves you money in the long run.

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