Low deposit car insurance

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Is no-deposit car insurance a myth?

It’s generally cheaper to pay for car insurance in one lump sum, but that’s not always possible if you’re on a tight budget. As a result, many drivers search for monthly no-deposit cover. 

What is no-deposit car insurance?

No-deposit car insurance is, in theory, insurance that doesn’t require you to pay any money upfront. It’s a tactic used by some providers to advertise car insurance. Dig a little deeper, though, and you’ll find that there’s no such thing.

If no-deposit car insurance existed, you’d get annual cover without paying anything before the cover started – instead, you’d pay at the end of the 12-month term. This kind of deal is not on the table. 

Instead, car insurance providers offer the chance to either pay all at once with an annual policy, or spread the cost of your premium over 12 monthly instalments. While spreading the cost means you don’t have to pay one large up-front sum, you still need to pay the first month’s cover before your insurance can begin. 

Typically, insurers require between 10% and 30% of the total to start the policy, followed by a series of equally sized payments until the premium is paid.

What is low-deposit car insurance? 

Some insurers advertise “low-deposit” insurance in a bid to attract customers, but this deposit is just the first payment you make on a monthly policy. It is only a small part of the overall cost and it is very subjective – after all, 10% of an expensive policy may be a greater sum than 30% of the cheapest.

Why is there demand for no-deposit or low-deposit car insurance?

People are looking for ways to cut their outgoings. The average cost of comprehensive car insurance is at a four-year low – at £460, it may not sound too bad, but this is just the average figure. Some people pay a lot more than others because of where they live, their driving record or other factors, such as age. Young people pay the most, with the average cost for 17- to 24-year-olds being £1,912. Older people tend to pay a lot less, due to their road experience.

To ensure motorists can afford to have at least the minimum level of insurance required by law, insurers allow policyholders to spread the cost of their premium over 12 months. This can be far more manageable than paying hundreds or thousands of pounds in one go.

Can I get cheap car insurance with a low deposit?

Rather than asking you to pay a higher sum for the first monthly instalment, some insurance providers offer deals that allow you to pay for your annual car insurance in 12 equally-sized monthly payments. Unfortunately, this is not very common and you still need to make your first payment before cover starts. 

Can I get car insurance with no up-front cost?

No – you always need to pay a certain amount up front before your policy can start, even if this is a relatively small sum. 

Get a breakdown of instalment payments

If you want to pay monthly instalments, shop around and get a breakdown of instalment payments before you agree to anything. The best way to do this is to use a comparison site, picking monthly rather than annual payments. It does no harm to run searches for both, though, just to compare.

The first quote you see for monthly payments is the cheapest overall, after interest is added. Be warned, however, that the initial payment may be significantly higher than the next best quote, because lower interest is charged on the subsequent months’ payments. If you can afford the higher up-front quote, you generally pay less overall. If not, you pay more each month.

Different monthly car insurance payment terms

Initial payments may be higher with some insurers than others, but sometimes there can be good news hidden in the details. Rather than paying a relatively high initial payment followed by 11 monthly deposits, an increasing number of insurers require just 10 payments, which gives you time to save for your next policy.

Are there other ways to get cheap car insurance with no deposit?

Although insurers don’t offer no-deposit cover, it may be possible to avoid paying up front for insurance out of your own pocket if you pay with a 0% credit card. However, this can be problematic for the following reasons:

  • The insurer may charge an administration fee for processing the card payment

  • 0% credit cards are only interest-free for a specific period. You need to clear the balance before the 0% period ends, otherwise you could be stung with hefty charges 

  • You need to pay off what you owe on your card within the 12 months the policy lasts, otherwise you end up paying for two sets of insurance at the same time

Is it possible to pay monthly for car insurance, interest-free?

Yes – interest-free monthly car insurance is likely to appeal to drivers who cannot afford annual premiums up front. And the good news is that some insurance providers now offer interest-free deals. These options work on a subscription basis, with the policyholder paying monthly for cover, which ends when they cancel or stop making payments.

It is an alternative to short-term car insurance and it’s flexible, because there are no cancellation fees. However, the insurer needs to make a profit, so the premiums are comparatively high.

How else can I save on car insurance? 

If you’re on a tight budget, spreading the cost of your insurance premiums over 12 months can make it more manageable. However, there are several other ways to help cut costs on car insurance.

Increase your car insurance excess

The excess is the amount of any claim you agree to pay before your insurer steps in to cover the rest. The higher the excess, the lower your premium. Just make sure it’s still affordable.  

Consider black box insurance

Telematics or black box insurance involves having a GPS-enabled device fitted to your car that tracks your driving. In some cases, the black box simply records your mileage, which is directly linked to your premium. In other cases, it monitors your speed and braking, and can reward good driving with lower premiums or refunds.

Don’t dismiss comprehensive insurance

Surprisingly, comprehensive car insurance can be cheaper than third-party cover. This seems counterintuitive, as you get more for your money with comprehensive cover, but the reasoning is sound. Younger, less experienced drivers, who tend to lodge more claims, often choose third-party cover to save money, while more experienced drivers, typically with a better track record, opt for comprehensive insurance.

Don’t auto-renew your car insurance

A month before your car insurance policy expires, you are sent a reminder and told that if you don’t cancel, your insurer will renew your policy. This is convenient, but it often comes at a cost, as you can usually beat the renewal price by running quotes on a comparison site.

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Last updated: 18 May 2022