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