No deposit car insurance

Car insurance can be expensive and for many motorists, paying for their policy in one annual lump sum simply isn’t affordable, even though it’s the cheapest option. This is why many drivers look for ways to spread the cost. But “no deposit” isn’t quite what it seems. Here’s what you need to know.

What is no deposit car insurance?

No deposit car insurance means insurance that doesn’t require you to pay any money upfront. The problem is that all types of car insurance will require you to make some kind of payment before cover can begin.

What no deposit car insurance really means is that you can spread the cost of your policy over 12 monthly payments, which can be far more manageable than paying the full amount upfront – as you would with an annual policy.

For this reason, many motorists prefer to pay for their car insurance monthly, even though it usually means you’ll be paying interest on top of your premium.

Can you get car insurance with no deposit?

No deposit car insurance doesn’t really exist. It’s marketing-speak for paying monthly. But whether you choose to pay for your car insurance policy in one annual lump sum or in 12 monthly instalments, you’ll still need to pay a sum of money when you sign up to the policy – there’s no option to drive first and pay later.

If you have an annual policy, you’ll have to pay the full amount upfront, while if you have a monthly plan, you’ll need to make the first month’s payment before you can get behind the wheel of your car.

If you spread the cost of your insurance over 12 months, you’ll usually be asked to pay a larger amount for the initial payment compared to the amount you’ll pay over the following 11 months.

For example, if your policy cost £500, you might be asked to pay around 20% of the total annual premium upfront for the first month. This would be £100. The remaining cost of £400 would then be split into 11 equal payments of £36.36 a month.

How to get cheaper car insurance without a deposit

You’ll always have to pay a certain amount upfront when you buy car insurance. However, there are ways to keep costs down.

If you’re paying for your car insurance monthly, some insurers will allow you to spread the cost in 12 equal monthly instalments, rather than requiring you to pay significantly more for the first month’s payment. This can make the costs more manageable, but always get a full breakdown so you know exactly what you’ll be paying each month. Paying in instalments is likely to involve paying interest as, in effect, you’re getting credit from the insurer.

Alternatively, you could consider using a 0% purchase credit card to spread the cost of your car insurance interest-free.

How can I use a credit card to spread the monthly costs of car insurance?

Before using a 0% purchase credit card to spread the cost of your car insurance, you’ll need to check whether your insurance provider accepts credit cards.
If you decide to go ahead, your credit card can be used to cover the full annual cost of your car insurance premium and you’ll then make monthly payments to your card provider to pay off the amount owed.

Paying in this way will be cheaper as no interest will be added by your car insurance provider (as you’ve paid the amount in full), plus you can defer the first car insurance payment by a month and effectively avoid paying an upfront deposit.

However, you’ll also need to make sure you don’t get charged interest by your credit card provider. To do this you must pay off your card balance in full before the 0% deal ends and interest kicks in. Ideally you should aim to clear your balance within 12 months, before your car insurance policy renews, to avoid paying for two lots of car insurance at the same time.

How else can you save money on your car insurance?

There are several other steps you can take to help keep a lid on car insurance costs:

• Take out black box or telematics insurance. Fitting your car with a black box lets your insurer measure your speed, distance travelled, and what time of day or night you drive. If the results show that you’re a safe, responsible driver, you’ll receive a lower premium.
• Choose a higher voluntary excess. The excess is the amount you pay towards the cost of any claim you make. If you opt for a higher excess, most insurers will lower your premium. However, make sure you can afford to pay the higher excess amount in case you need to claim.
• Get a cheaper car. Is your car speedy and powerful? Does it have approved safety features? The more expensive or powerful your car, the more you’ll likely pay for insurance. Every car belongs to one of 50 insurance groups and the lower the number, the cheaper your insurance premiums will usually be. If you’re buying a new car it’s worth checking which group it falls into first.
• Watch your mileage. The less you drive, the less likely you are to be involved in an accident and claim on your car insurance. So, by reducing the number of miles you drive each year, the less you’ll pay for cover.
• Build up a no claims discount. Insurers usually reward motorists with a no claims discount for each year they don’t claim on their insurance. The longer you go without claiming, the bigger the discount.
• Avoid auto-renewing. Insurers will often bump up the price of your insurance if you automatically renew, and many providers also offer discounts to new customers. Before renewing your policy, make sure you shop around to see if you can get a better deal.

When will I start paying for deposit free car insurance?

Even if you split your car insurance payments into monthly instalments, you’ll need to pay the first instalment upfront before your policy can start.

Will my deposit cover my first month’s car insurance?

If you’re paying monthly, your first payment will cover part of the annual cost of your insurance premium, as well as interest and the deposit.

If you’re paying annually for your car insurance, there will be no interest to pay.

Can I get car insurance without making an upfront payment?

No – whether you’re paying monthly or annually for your car insurance you will need to make some form of initial payment before your cover can begin. Cover can start either on the date you make your first payment or a few days later, depending on what you choose.

Can I get monthly car insurance with a poor credit rating?

Paying for your car insurance monthly will mean you’re entering into a credit agreement with your insurance provider. As a result, when you apply for insurance, your insurer will run a credit check to see how likely you are to pay what you owe. This will be a “hard search” which means other lenders will be able to see it on your credit file.

In comparison, if you are paying for your car insurance annually, only a “soft search” will be carried out to check your details. Soft searches can only be seen by you and won’t affect your credit score.

If you have a poor credit rating, you’ll be a higher risk to the insurer and as a result, you may be turned away or have to pay a higher rate of interest, making your monthly payments more expensive. This makes it even more important to shop around and make sure you’re getting the best deal.

Where did the “no deposit car insurance” myth come from?

No deposit car insurance started when insurers began advertising their policies in this way to entice young or learner drivers who were finding it too expensive to pay for their car insurance in one go.

However, while many motorists were not required to pay anything when first signing up for their car insurance policy, the first payment was usually taken from their account within the first few days or weeks.

I’ve been offered no deposit car insurance – is it a scam?

If you’re applying for car insurance and you’re told you do not need to pay anything upfront, always read the small print carefully to check when the initial payment will be taken. This is usually within the first few days of making your application, so it’s important to check exactly when it will go out and how much it will be.

Remember that the first payment is often higher than subsequent ones, so always ask your insurance provider for a full breakdown of costs before agreeing to anything.

Is low deposit car insurance also a myth?

If you see an advertisement for low deposit car insurance, it will usually be referring to the first monthly payment you’ll need to make if you pay for your insurance monthly. Some insurers advertise it in this way in the hope it will attract customers. For example, you might be asked to pay 10% of the annual premium for your first monthly payment, rather than the 20% other insurers offer. However, it’s important to factor in the overall cost before making a decision.

Bottom line

Despite the advertisements you may come across, no deposit car insurance doesn’t actually exist. No matter how you pay for your car insurance, you’ll always have to make some sort of initial payment before you can get behind the wheel of your car.

If you are struggling to pay for your car insurance in one go each year, spreading the cost with an interest-free credit card is a good option. However, if paying for your car insurance monthly is your only choice, it’s crucial that you shop around to ensure you are getting the best deal and that you understand the full breakdown of costs.

Frequently asked questions

• How do insurers work out car insurance payments?

  There are various factors that will dictate how much you’ll have to pay for car insurance. Your provider will have an algorithm that analyses your details and works out how big a risk you are from the area you live in to the car you drive. External factors also push up premiums. If your provider has had a large number of claims this year it might make up the shortfall by charging all of its customers (even those who haven’t claimed) more.

• Is it cheaper to pay annually or monthly?

  It’s generally cheaper to pay in one lump sum annually. If you pay monthly you’ll probably be hit with interest charges, which will increase the overall costs.