No Deposit Car Insurance Explained
A guide to so-called ‘no deposit’ cover.
Updated on Monday 21 August 2023
With car insurance premiums typically being so expensive, especially for new and inexperienced drivers, you may be tempted to spread the cost of cover over monthly payments.
No deposit car insurance may initially seem like a useful way of spreading the cost of your premiums, but it’s not what it seems, and you could even end up paying more than you need to.
Technically, no-deposit car insurance doesn’t exist, but there are insurers out there that offer monthly payment options, rather than asking you to pay it all upfront with one lump-sum.
But be careful, paying monthly for car insurance can be risky and you could face high interest rates, which is why paying for insurance with an annual lump-sum is usually the best way to get the most affordable deal.
What is no deposit car insurance?
According to GoCompare, there is no such thing as ‘no deposit car insurance’, and insurers simply use it as a marketing tactic to promote their pay-monthly car insurance policies.
GoCompare stated that, as a rule of thumb, you need to make a payment before being insured and you won’t be covered until the provider receives some sort of premium from you. Be sure to read the terms and conditions of the policy carefully if you aren’t sure about what you’re being offered, or contact an independent broker to do the work for you.
Additionally, Compare the Market is also of the same belief, stating that ‘no deposit’ should mean that you’re able to purchase cover without paying any money upfront, but all car insurance policies require some kind of initial payment in order to begin.
Types of car insurance payments to choose from
Generally speaking, you can either pay for car insurance in one lump-sum (annually) or by splitting it over the course of the term with equal monthly payments.
Many pay-monthly policies include a 20% up-front payment in the first month, which is what many think of as the ‘deposit’.
However, these so-called ‘no deposit car insurance policies’ offer to spread this cost over the course of the year, which makes it seem like you’re not paying a deposit.
It’s important to note, however, that the first payment of a ‘no deposit’ policy will only be a matter of a few days away, because the car insurance company must be paid before you get behind the wheel.
Shall I pay car insurance monthly or annually?
You have a couple of options regarding how you pay for your insurance, including a lump-sum or a monthly direct debit.
Whether a pay-annually or pay-monthly policy is best for you depends on your individual circumstances, so it’s always worth weighing up your options before coming to a decision.
Paying annually for car insurance
Most drivers tend to pay for their car insurance annually, with one lump-sum payment covering the entire cost when they take out or renew a policy.
Doing so means that you avoid any interest charges and you are therefore more likely to end up paying less in total.
One downside to this, however, is that it does require handing a large amount of money over in one go, which not all people are able to do.
One way to help with this is to have a saving pot in which you put money aside for car insurance every month throughout the year – that way, it won’t feel like such a financial hit when the time comes to renew your policy.
We usually recommend that paying annually for cover is the best way to go, and there are also various ways to get cheaper car insurance, which can help make the expense a more bearable and affordable one.
If, however, there is no way that you can pay a lump-sum to cover the full balance, you could then consider a pay-monthly policy, but this can sometimes be more expensive in the long-run.
Pay-monthly car insurance
Most pay monthly car insurance plans consist of equal monthly direct debit payments spread over the course of a 12-month term.
Monthly car insurance (sometimes referred to as pay as you go car insurance) is essentially a loan, so there will be interest added on top of what you owe.
This means that, while it may initially seem like you’re getting a better deal if you’re offered cheap monthly car insurance with no deposit, the reality is that you will end up paying more due to the high interest rates.
If you don’t make repayments, you may face additional fees and your credit rating will be damaged, which will make it more difficult to get loans, mortgages and other credit products in the future.
For more information on credit scores and car insurance, check out our related guides:
Most monthly car insurance payment plans consist of the following elements:
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20% upfront payment (this is the ‘deposit’ people talk about).
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Equal monthly payments until the end of the policy.
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Interest on top of each monthly payment (at a rate dependent on your credit situation).
There are also other methods of paying for car insurance, including pay-as-you-drive cover and even temporary car insurance.
Read our guide to short-term one month car insurance to see if a temporary policy might better suit your situation.
Can you pay car insurance with a credit card?
Some car insurance companies will accept credit card payments, meaning that you may be able to defer your first payment and spread the cost of your cover with an interest-free purchase credit card.
If you’re well-organised and are able to manage your finances accurately, paying for motor insurance with a credit card can be beneficial.
This is as close to a genuine ‘no deposit’ car insurance policy as you will get, but it also carries a degree of risk as you must keep up with repayments or you could face significant late-payment penalties and damage your credit score.
Can you get car insurance with no deposit to pay up front?
You’ll struggle to find cheap car insurance with no deposit because it doesn’t necessarily exist, but there are ways that you can spread the cost of cover if you cannot (or would rather not) pay it all off with one lump-sum premium.
If you’re ever offered instant car insurance with no deposit, be sure to read the policy’s documents and the terms and conditions, as it’s likely to be too good to be true.
While you should certainly consider all finance options, we generally recommend that annual car insurance is the safest and most reliable way of getting cheaper cover over the long-term.
When taking out a new policy or renewing your cover, you should always shop around and compare car insurance quotes from a variety of providers to find the cheapest deal for you. If you find a cheaper deal than what your existing provider is offering, you should switch insurers.
Compare quotes here to find out how much you could save on cover:
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