Buying a Car

No Deposit Car Insurance May End Up Costing You More

(Because rest assured, insurance companies always get their money)
No Deposit Car Insurance

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 up front. However, closer inspection of these policies often reveals that they not only don’t save you money but can even cost you more. Let’s take a look.

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 policy, customers have the option to pay their entire premium up front 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 deposit 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. Only it’s actually rather sketchy.

How Does No Deposit 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’ payments.

No deposit policies are set up to appear to wave 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.

How Can No Deposit Car Insurance End Up Costing You More?

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 probably 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. Not cool.


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Why Would Someone Need No Deposit Car Insurance?

No deposit 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 up front.

Those insurance customers strapped for cash in the beginning 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 deposit policies, some customers may still consider them to work out in their favor. Sometimes that money just isn’t available up front, and someone may know that their job will afford them the ability to pay 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 pretty 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.

A few factors that influence no deposit car insurance include the following:

  • 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. 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 pretty much every kind of insurance under the sun. If you’re in an area with higher crime records, 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, if you’ve racked up quite a few tickets or accidents, you’re likely to shell out much more. Car insurance providers also peek at 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 is likely to be.

If you’ve got a squeaky-clean driving history, you might be eligible to get a cheaper first month of coverage and then start paying more for the subsequent premiums. In the case that 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.

There’s No Such Thing As Free Car Insurance

Sadly, sometimes no deposit car insurance is advertised in order to lure in potential customers based on deceptive promises. Keep in mind that bigger, well-respected insurance companies do not resort to misleading ads. As for those 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. We hate to be the bearer of bad news, but this practice just isn’t a reality. You must make your first payment to an insurance company before your coverage begins.

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

Car Insurance Quotes Should Be Free

Another thing to be wary of is any car insurance company advertising free insurance quotes as if it’s a special offer. The reputable, big-name companies do not charge for quotes. So, any car insurance company that provides misleading information, especially up front, is not to be trusted. This includes offering any false “deals” for free quotes.


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How to Sign Up for No Deposit Car Insurance

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

  • Driver’s license
  • Vehicle registration
  • Existing insurance declaration page, if applicable
  • Voided check
  • Payment for the first month’s premium

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.

Final Note about No Deposit Car Insurance

Though no deposit car insurance options may offer a way to save money up front, 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 will even offer discounts to those customers who opt to pay their entire premium at the time of sign-up.

Regardless of which route you choose when selecting your new car insurance policy, just make sure to walk away with coverage that fits your unique needs. Pay attention to the information provided and if advertisements seem legit. 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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