Why No Deposit Car Insurance Might Actually Be More Expensive

When shopping around for new car insurance, you may have seen “no deposit” or “no down payment” policies advertised. These policies may sound great, and they’re worded to make it seem like they’ll end up saving you a ton of money — at least upfront. However, closer inspection of these policies often reveals that they can actually end up costing you more than regular auto policies. 

When you're ready to find the most affordable car insurance in your area, a local independent insurance agent can help you. They'll get you matched to the right policy with the best available rate. But first, here's a closer look at no deposit or no down payment car insurance.

What Is No Deposit Car Insurance?

Also advertised as “no down payment” car insurance, no deposit policies promise a way for customers to avoid paying an extra deposit fee on top of the first month’s premium when they sign up for coverage. When buying a new car insurance policy, customers have the option to pay their entire premium upfront or split it into monthly payments. The down payment, which includes the first month’s premium at the time of sign-up, is usually higher.

That’s where a third option is created. No down payment car insurance policies do split the premium into monthly payments, but they offer an out when it comes to the additional fee, known as the deposit, tacked on by insurance companies to that first month. The catch is that this might not save the customer any money in the long run.

How Does No Down Payment Car Insurance Work?

Even if you’ve opted to split your car insurance premium into monthly payments, you’ll still be expected to hand over a chunk of money upon signing up for your new policy. Down payments on new insurance policies can sometimes be as high as 20-30% of the entire premium or the equivalent of a couple of months’ premium payments.

No deposit policies are set up to appear to waive this extra fee portion of your initial payment. When you sign up, you’ll pay what you think is the regular amount for a monthly payment with no added deposit tacked on. Of course, there's a catch.

How No Deposit Car Insurance Can Cost You More Over Time

Here’s the tricky part. Though you seem to avoid the larger down payment when signing up for coverage, the insurance company is still bound to make up for that money throughout the lifespan of your policy. 

This means they’ll likely make your monthly premiums higher than if you’d paid a deposit. Even worse, they may charge you even more than just the amount required to make up for the difference. Many customers would understandably be upset to discover this about their policies.

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Why Would Anyone Choose No Down Payment Car Insurance?

No down payment car insurance can be attractive to customers who don’t have a large amount of money to offer for a policy at sign-up time. Perhaps you’ve recently moved for a job and had to purchase a new car, so now your funds are tight. You might not be able to afford your entire car insurance premium in one lump sum upfront.

Insurance customers with tighter budgets often opt for monthly payments, though they may not be able to afford the extra deposit fee on top of the first premium. No deposit car insurance policies can help customers put off paying some of that money back until they’ve had time to save up a bit.

Even after learning about the potential higher costs of no down payment policies, some customers may still consider them to work out in their favor. Sometimes, that money just isn’t available right when a new policy is needed, and customers may know they'll be able to afford the added difference in the coming months. In this situation, extra fees added to the monthly premiums could seem worth it.

Who Is Eligible for No Deposit Car Insurance?

Applying for no deposit car insurance is similar to applying for any other kind of car insurance. There are a certain number of factors that affect your eligibility and overall cost of your policy as well as the deposit amount, as with all kinds of insurance.

Factors that influence the cost of no down payment car insurance include:

• The kind of car you drive: In general, the more of a risk your car is deemed, the more expensive its insurance. Smaller cars and sports cars are seen as being high risk when it comes to accidents, but the age and model of your car also affect your premium. Typically, older cars are less expensive to insure, but this isn’t always the case, especially if your car requires foreign parts.
• Your location: Where you live affects the cost of pretty much every kind of insurance you might need. If you’re in an area with higher crime rates, your premiums are likely to be higher, too.
• Your driving and credit histories: If your driving record is clean, you’ll be seen as less of a risk to the insurance company, so your policy and deposit will be cheaper. However, drivers with accidents or traffic violations can expect to pay more for their coverage. Car insurance providers also check your credit score since financial habits have been shown to correlate to driving behavior. The better your credit score, the lower your insurance premium and potential deposit are likely to be.

If you’ve got a clean driving record, you might be eligible to get a cheaper first month of coverage and then start paying more for the subsequent premiums. If an insurance deposit is unavoidable for you, the additional cost can range from just a few extra dollars to up to 30% of your total premium.

How to Sign Up for No Deposit Car Insurance

The process of signing up for no down payment car insurance is the same as for any other new car insurance policy that’s broken into monthly premium installments. The only difference is that you won’t need extra money upfront for the additional deposit fee. However, you will need the following:

One easy way to speed the new car insurance application process along is to have all your necessary documents together before you arrive, make the call, or log onto the insurance company’s website.

Remember: There’s No Such Thing as Free Car Insurance

Sadly, sometimes no down payment car insurance is advertised to lure potential customers based on deceptive promises. Keep in mind that bigger, well-respected insurance companies do not resort to misleading ads. As for less respectable companies, just be aware that insurance is never given away for free, not even for a month.

Sketchy ads may try to make it sound like you can purchase a new car insurance policy without making any down payment or deposit and basically get your first month of coverage free. Unfortunately, this practice just isn’t a reality. You must make your first payment to an insurance company before your coverage becomes active.

With all of this in mind, be skeptical if you ever see an insurance company offering a free first month. Trustworthy, big-name companies don't pretend to offer a free month or no deposit or no down payment, because, realistically, they can’t start offering someone coverage if they haven’t collected any money upfront. That could lead to financial ruin for the insurance company.

However, Car Insurance Quotes Should Always Be Free

Another thing to be wary of is any car insurance company advertising free car insurance quotes as if it’s a special offer. Reputable car insurance companies don't charge customers for quotes. Any car insurance company that provides misleading information is not to be trusted. This includes offering any false “deals” for free quotes.

Final Thoughts on No Down Payment Car Insurance

Though no deposit car insurance options may offer a way to save money in the beginning, it’s worth considering how much extra money they might cost you in the long run. It’s also worth taking into account that certain big-name car insurance companies offer discounts to customers who opt to pay their entire premium at the time of sign-up, often known as "paid-in-full" discounts.

Regardless of which route you choose when selecting your new car insurance policy, make sure to walk away with coverage that fits your personal needs. Pay attention to the information provided and whether the advertisements seem legitimate. Insurance is meant to provide a sense of security, and it’s ultimately not worth signing up with an untrustworthy company to save money.

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How an Independent Insurance Agent Can Help

Independent insurance agents have access to multiple car insurance companies. They can shop and compare policies for you to find the best overall blend of coverage and cost. 

Better yet, these agents are experienced and knowledgeable about which car insurance companies are legitimate and have high rates of customer satisfaction. Whether you're looking for no down payment car insurance or standard car insurance, an independent insurance agent will ensure you get matched to the right coverage that offers the protection you really need.