Low deposit car insurance

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Is no deposit car insurance a myth?

Last updated: 29 September 2020

It’s cheaper to pay for car insurance in one lump sum, but that’s not always possible if you’re on a tight budget. It explains why drivers search for monthly ‘no deposit’ cover. The problem is it doesn’t exist, as we explain in this guide.

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 it is just the average and it’s mainly due to the fewer car journeys taken during the Covid-19 lockdown. Now that’s over, car use is expected to rise again.

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 anyone can have at least the minimum level of insurance required by law, insurers allow policyholders to pay for their cover on a monthly basis, sometimes referring to this option as ‘no deposit’ car insurance, even though in reality there is no such thing.

Why doesn’t no deposit car insurance exist?

If there was no deposit car insurance this would mean you’d get your annual cover without paying anything up-front, 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 policies will offer policyholders the chance to pay for policy up-front, in instalments, starting with one large initial payment followed by a series of equal payments until the premium is paid up.

It might be splitting hairs, but as your cover only starts when you have paid your first instalment, you are not really getting cover without a deposit. This is different from a 'buy no pay later' deal on a sofa or a television.

What is low deposit car insurance?

It’s better to think of ‘no deposit’ car insurance as ‘deposit’ insurance for this reason. You cannot approach an insurer and expect cover before giving them a proportion of your total premium.

Typically, insurers will require between 10% and 30% of the total owed to start the policy. Sometimes this is advertised as low deposit insurance, but that’s very subjective as 10% on an expensive insurance may be more than 30% on the cheapest.

Get a breakdown of instalment payments

If you are set on paying monthly instalments for car insurance you should ensure you shop around for cover. The best way 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 just too expensive, the first quote you see for monthly payments will be cheapest overall, after interest is added.

However, being the cheapest may mean the initial payment is significantly higher than the next best quote, so less interest is charged on the subsequent months’ payments. If you can afford the higher up-front quote, you’ll 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 pay 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.

Ideally, this would give them enough time to jump from monthly payments to annual payments, but in many cases it won’t. Making it as important as ever to set aside time to shop around for the best cover and payment option.

Is there a way to get very cheap car insurance?

Although car insurers do not offer no deposit cover, it may be possible to avoid paying for insurance out of your own pocket up front 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 keep on top of monthly repayments otherwise you could lose the 0% interest benefit

  • You may need to switch credit cards before all your monthly payments have been made, and in doing so attract a fresh admin free from the insurer

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 up-front. 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 can I keep my car insurance costs down?

Anyone hankering after no deposit insurance should consider what they are really looking for. Ultimately, car insurance is a legal requirement and if you can’t afford it the only alternatives are to not drive or to be a named driver on someone else’s policy.

If you are keen to build up your own no claims discount you will need insurance, even if this means making monthly payments and taking the interest hit. As no one wants to pay more interest than they need it makes sense to look for ways to reduce the underlying premium.

Here are some ways to 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 should see your overall premium reduced.

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 the black box simply records your mileage, which is directly linked to your premium. In other cases it monitors your speed and braking, either rewarding your good driving with lower premiums or refunds, or penalises you by increasing your premium.

It is not everyone’s cup of tea, but if it shaves a sizeable chunk off your premium then it is well worth considering.

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, but the reasoning is sound.

Younger, less experienced drivers, who tend to lodge more claims, often choose third party as a way to save money, whereas more experienced drivers, typically with a better track record opt for comprehensive.

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 renew price by running quotes on a comparison site.

Low deposit car insurance FAQs

If you pay monthly you will need to make an initial payment when you by your policy. This is often more than your other monthly payments.

No, you will always have to make an upfront payment when you buy a car insurance policy.

It comes down to a number of factors including: your car, age and where you live. This guide explains how it is worked out.

There are several things you can do. Try these 10 easy ways to cut your car insurance costs.

Check what comes as standard with your policy before you add extras like breakdown cover. Here is how to work out which extras you might need.

Paying monthly is usually more expensive because you will be charged interest of up to 30%.

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