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. 

But does no deposit car insurance really exist? We take a look.

What is no deposit car insurance?

No deposit car insurance simply means car insurance that doesn’t require you to pay any money upfront. It’s a tactic used by some providers to advertise car insurance but when you dig a little deeper you see there’s actually no such thing.

If no deposit car insurance did exist, this would mean you’d get your annual cover without paying anything upfront, which effectively means 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 policyholders the chance to either pay in one go with an annual policy, or to spread the cost of their premium in 12 monthly instalments. 

However, while spreading the cost means you won’t have to pay for your insurance in one large sum upfront, you’ll still need to pay the first month’s cover before your insurance can begin. Typically, insurers will require between 10% and 30% of the total owed to start the policy, followed by a series of equal payments until the premium is paid up.

What is low deposit car insurance? 

The first monthly payment you make on a monthly car insurance policy is sometimes advertised as ‘low deposit’ insurance in a bid to attract customers. 

However, this is only a small part of the overall cost of insurance and it can be very subjective - after all, 10% on an expensive insurance may be more than 30% on the cheapest.

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

The average cost of comprehensive car insurance is at a four-year low. At £460, this may not sound too bad, but remember that this is just the average figure. 

Some people pay more for insurance than others because of where they live, their driving record or other factors, such as age. The young pay the most, with the average cost of cover for 17 to 24s 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 insurance premium over 12 months. This can be far more manageable than paying hundreds - or potentially 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 will allow you to pay for your annual car insurance in 12 equal monthly payments. 

Unfortunately, however, this type of deal is not terribly common and you will still need to make your first payment before cover starts. 

Get a breakdown of instalment payments

If you are set on paying monthly instalments for car insurance, always shop around for cover and get a breakdown of instalment payments before you agree to anything. The best way to do this is to search for quotes on a comparison site, picking monthly rather than annual payments. It does no harm to run searches for both, just to compare.

If paying annually is too expensive, the first quote you see for monthly payments will be the cheapest overall, after interest is added.

Be warned, however, that being the cheapest may mean the initial payment is significantly higher than the next best quote, as less interest is charged on the subsequent months’ payments. If you can afford the higher upfront quote, you’ll generally pay less overall. If not, you’ll 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.

Being required to stump up 10 monthly payments has one key advantage over a full 11 subsequent payments, as it gives the policyholder time to save for their next policy.

Can I get car insurance with no upfront cost?

No - you’ll always need to pay a certain amount upfront before your insurance policy can start, even if this is a relatively small sum. 

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

Although car insurers do not offer any deposit cover, it may be possible to avoid paying for insurance out of your own pocket upfront 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 would need to clear the balance before the 0% period ends, otherwise you could be stung with hefty charges of 18% on whatever balance you have left

  • It’s important to have paid off what you owe on your card within the 12 months the policy lasts, otherwise you’ll end up paying for two sets of insurance at the same time

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

Interest-free monthly car insurance is likely to appeal to drivers who cannot afford to cover annual premiums upfront. The good news is some insurance providers are now offering 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 flexible as there are no cancellation fees. However, the insurer needs to make money from somewhere, which is why premiums can be 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 more you agree to pay, the lower your premium should be. 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 as a way to save money, whereas 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 will be 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: 7 March, 2022