What is No Deposit Car Insurance?

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By Cai Bradley
Updated on Wednesday 4 March 2020

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With car insurance premiums typically being so high, especially for new and inexperienced drivers, there is a temptation to spread the cost over monthly payments.

Technically, no-deposit car insurance doesn’t exist, but there are insurers out there that offer monthly payment options, rather than asking you to pay it all upfront with one lump-sum.

But be careful, paying monthly for car insurance can be risky and you could face high interest rates, which is why paying for insurance with an annual lump-sum is often the best way to get the most affordable deal.

The truth about no deposit car insurance

According to GoCompare, there is no such thing as ‘no deposit car insurance’, and insurers simply use it as a marketing tactic to promote their pay-monthly car insurance policies.

GoCompare stated that, as a rule of thumb, you need to make a payment before being insured and you won’t be covered until the provider receives some sort of premium from you. Be sure to read the terms and conditions of the policy carefully if you aren’t sure about what you’re being offered, or contact an independent broker to do the work for you.

Read more: How to Save Money on Car Insurance Premiums

Generally speaking, you can either pay for car insurance in one lump-sum (annually) or split it over the course of the term with equal monthly payments. Many pay-monthly policies include a 20% up-front payment in the first month, but so-called ‘no deposit car insurance policies’ offer to spread this cost over the course of the year, which makes it seem like you’re not paying a deposit.

It’s important to note, however, that the first payment of a ‘no deposit’ policy will only be a matter of a few days away, because the insurer must be paid before you get behind the wheel.

Shall I pay car insurance monthly or annually?

You have a couple of options regarding how you pay for your insurance, including a lump-sum or a monthly direct debit.

Paying annually for car insurance

The majority of drivers tend to pay for their car insurance annually, in-full, with one lump-sum payment when they take out or renew a policy. Doing so means that you avoid any interest charges and you will therefore end up paying less in total.

One downside to this is that it does require handing a large sum of money over in one go, which not all people are able to do. One way to help with this is to have a saving pot in which you put money aside for car insurance every month throughout the year – that way, it won’t feel like such a financial hit when the time comes to renew.

Pay-monthly car insurance

Most pay monthly car insurance plans consist of equal monthly direct debit payments spread over the course of the 12-month term.

Monthly car insurance (also known as pay as you go car insurance) is essentially a loan, so there will be interest added on top of what you owe. This means that, while it may initially seem like you’re getting a better deal if you’re offered cheap monthly car insurance with no deposit, the reality is that you will end up paying more due to the high interest rates.

If you don’t make repayments, you may face additional fees and your credit rating will be damaged, which will make it more difficult to get loans, mortgages and other credit products in the future.

Most monthly car insurance payment plans consist of:

  • 20% upfront payment (this is the ‘deposit’ people talk about).
  • Equal monthly payments until the end of the policy.
  • Interest on top of each monthly payment (at a rate dependent on your credit situation).

Read our guide to short-term one month car insurance to see if a temporary policy might better suit your situation.

Can you pay car insurance with a credit card?

Some car insurance companies will accept credit card payment, which means that you may be able to defer your first payment and spread the cost of your cover with an interest-free purchase credit card.

If you’re well-organised and are able to manage your finances accurately, paying for insurance with a credit card can be beneficial. This is as close to a genuine ‘no deposit’ car insurance policy as you will get, but it also carries a degree of risk as you must keep up with repayments or you could face significant late-payment penalties.

Can you get car insurance with no deposit to pay up front?

You’ll struggle to find cheap car insurance with no deposit because it doesn’t necessarily exist, but there are ways that you can spread the cost of cover if you cannot (or would rather not) pay it all off with one lump-sum premium.

If you’re ever offered instant car insurance with no deposit, be sure to read the policy’s documents and the terms and conditions, as it’s likely to be too good to be true.

For more information on money-saving and car insurance, be sure to see our related articles:

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