Guide to no deposit car insurance
No deposit car insurance doesn't exist, but there are ways to reduce the cost of car insurance and get the right deal for your budget.
- With some exceptions, car insurance is generally calculated on an annual basis, and payments can be split out over 12 months
- If spreading the cost of car insurance across the year, you'll usually have to make an upfront payment to your insurer before your car is insured
- Paying car insurance monthly by direct debit is often the most convenient solution, but not the cheapest, as it's a type of loan with interest added
Nobody ever said it was cheap to own a car - but the fact is, it’s getting more and more expensive, and car insurance is no exception.
The cost of the average car insurance premium increased by £45 in the year to October, 2017, reaching a record high, according to the Association of British Insurers’ (ABI).†
It also reveals that Insurance Premium Tax (IPT) had doubled over the last two years, with the average repairs bills up by a third in four years.
No wonder the RAC Foundation found that the cost of motoring has risen significantly above the rate of inflation over the 10 years from 2007-2017.†
And all of this when the overall cost of living is rising faster than wages.
Does no deposit car insurance exist?
Many of us are looking for ways to save money on car ownership - and particularly on car insurance.
It’s a significant expense, and if your monthly outgoings are already squeezed, it’s hard to see where that'll come from.
Against this backdrop, it’s no wonder that an advert for ‘no deposit’ car insurance would grab your attention.
But if you’re tempted by it, make sure you know what you’re getting - ‘no deposit’ car insurance simply doesn’t exist, as you will always have to make a payment before your car is insured.
If the policy doesn't ask for an initial deposit, check when the first payment is due - it may only be a couple of days, or weeks, after you've set up the policy, and be dearer than the following 11 payments.
The bottom line is that you will always be required to make a payment before an insurer will cover your vehicle.
This will be either all, or part, of the cost of a year’s insurance, paid up front.
How insurers work out payments
“Car insurance is priced on an annual basis,” explains David King, product expert at Budget Insurance.
“Many insurance companies, including Budget Insurance, offer customers an option to pay monthly rather than paying as a lump sum at the start of the policy.”
As Chloe French, PR manager at Churchill, says, this comes with a catch.
“When someone chooses to pay monthly, they are effectively taking out a loan for the year ahead's cover and they pay this off over instalments, which have had an interest rate applied to them.
“This is why it is more cost effective to pay for insurance in one lump sum - but we appreciate that this isn't always feasible and is why insurers offer the option of monthly payments.
David King adds: “for customers who chose to pay in monthly instalments, this is a credit agreement and an interest charge will be added to the premium.
"All Budget Insurance customers are required to make an up-front payment of at least one 12th of the annual premium.”
In fact, a payment of one 12th of the annual premium is probably the lowest ‘deposit’ you will come across.
At esure, customers are offered a slightly different proposition, as Elizabeth Kittle explains: “New esure customers who choose to pay by instalments do so by first paying a deposit of two months’ premium when buying the policy.
“They then pay 10 equal monthly payments.”
This is often the way insurers separate out payments.
How to avoid car insurance deposits
It's not likely that an insurer will let you off paying the deposit, and if you just don't pay it, you won't have car insurance.
So, it's time to do a bit of detective work and shopping around to turn that deposit frown upside down.
Compare car insurance
With GoCompare, you can find car insurance that's charged annually, or via direct debit, and pick a cracking policy at a fair and manageable price.
You may find that shopping around and saving in other ways will more than make up for your deposit deficit.
Buy a car with a low insurance group
If you're shopping around for a brand spanking new motor, or a second-hand dream, remember that a car with a low insurance group may cost less to insure - it very much depends on your personal circumstances.
You can check your cars' insurance group with GoCompare and read more about insurance groups between one, the lowest, and 50, the highest, here.
New cars and dealership offers
The cost of tax and insurance can be bundled into manufacturer car finance, loans offers and packages.
Often you'll find that price is negotiable if you can offer a little more for the car deposit.
Just make sure you check your figures stack up - it's likely that if you can pay the full cost of the car and insurance up front instead, it'll work out less.
Borrowing and 0% finance
If you've got a bit of time to spare between buying the car and actually driving it home, remember that you could pay off the full annual fee, deposit included, using a 0% credit card.
By definition, this credit card is interest-free for a set period of time - so long as you make the minimum payments and repay the full amount within the 0% time frame, you won't have to pay interest.
Even if you wanted to defer paying the deposit by a month, a 0% credit card would allow you that flexibility.
Just be aware that some insurers may charge an additional fee for paying on certain types of card, such as credit cards.
Read more about 0% purchases cards, and balance transfer cards, here.
Loans and peer-to-peer lending as alternative borrowing are more expensive because they will charge interest, but they might still be cheaper than the credit agreement for paying for insurance in instalments.
If you do choose to take out a credit card or loan, make sure you read the terms and conditions carefully, and be sure that you can afford to repay the borrowed amount, plus any interest, within the time limit.
Spreading the cost of car insurance
So, you can spread the cost of your car insurance, but this is usually more expensive than a one-off payment as most insurers will charge interest on the instalments.
It pays to read the small print so that you know exactly what you are paying.
If you can pay the whole of your insurance premium upfront, this is usually the cheapest way to do it.