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Can you buy car insurance without a deposit?

Need to insure your car, but don't want to put down a deposit? Many websites claim that 'no – deposit' policies are freely available, but is this correct?

There are ways in which you can buy an insurance policy without paying anything up front out of your own pocket. You cannot however compare quotes on price comparison engines and look for insurers that don't need anything paid in advance, before they will issue a certificate of insurance. Under UK law it is illegal to start a new policy in this way.

If you get a policy which you pay for an extended terms you will in effect be borrowing money, either from the insurer itself, or from a financial company that has an agreement with the insurer. Either way it is practically certain that you will be charged for the privilege.

So, your cover is due for renewal but you have other bills to pay. How do you avoid paying a large proportion of your annual premium right now?

1) ask your existing insurer.

If you have been a good customer, the company you are currently insured by will not want to lose you. If you ring them up and explain the situation they may well agree to you paying them monthly. Under contact law this is acceptable since you have an existing financial arrangement with them.

2) get a credit card with zero interest rate.

If you are able to get this type of credit card, you could use it to buy your insurance policy (or at least pay the deposit) and then make monthly payments to the credit card company. This has both advantages and disadvantages:

Advantages

a) Since you would not have to worry about whether or not insurers offered extended payment plans, you would be able to pick whichever policy you wished from those available from the various price comparison sites. Very often the cheapest policies are offered by companies that insist on full payment upfront.
b) You wouldn't have to worry about cover being withdrawn if you were to have to miss any repayments if you have an unexpected financial issue.

Disadvantages

These 'no – interest' policies are always restricted to a certain length of time, after which interest is charged on any outstanding balance. This interest can be quite heavy. You therefore need to make sure that you have paid off any money that was due before you reach this stage.

You may find the credit card plan like this little difficult to find. Some card companies avoid them, and some will only accept customers with perfect or near – perfect credit records.

Searching for the cheapest policy

If you look for car insurance quotations on the popular price comparison engines you will find that there is a huge variation, not only in the amount of deposit that each insurer requires, but also the interest rates and charges that you will also need to pay. You need to be far more careful about just what you are committing yourself to before deciding which policy to buy, because you don'tjust need to know just what the initial premium is. The important thing is what you will actually have to pay when all the various extras have been added on.

How much would I have to put down?

In research we conducted in 2017 into thousands of quotes, taken from the most popular price comparison sites, we found that the lowest sum available was 10% of the initial premium, with the balance (including interest and charges) repayable over 11 months. The most popular initial payment was 20%, with a sustantial number of insurers offering no easy-term option at all. We are aware however that some of these companies do allow monthly payments to some existing clients whose policies are up for renewal. They don't normally offer this option to new customers, however.

How much extra do 'pay monthly' policies cost?

This varies, not only from one insurance company to another, but also from one customer to another, but the average came at about 11%. This means that someone with an initial premium of £500 could be charged an extra £55 for the privilige of having extended payments. We noticed, however, that applicants with poor credit ratings tended to be svarged substantially more. This was particularly noticeable in the case of young drivers, who would have little or nothing in the way of a credit record. They were hit with, on average, both the highest initial premiums and the highest additional charges.

If I have a bad credit record, can I still make monthly repayments?

Again, this will vary from one insurer to another and one customer to another. When an applicant indicates a wish to make regular payments a credit check is likely. This is what is known as a 'soft' check; this means that the applicant is the only person who can see it, and it therefore won't accept the motorist's credit rating. Once a policy of this type is taken out, however, this is recorded on the client's official credit record, as well as the repayment record. Completing all payments within the agreed time should help improve the customer's standing, and so help to make it easier and cheaper to obtain credit in the future. The opposite also applies, of course, so it is important to ensure that these agreements are strictly adhered to.

Conclusion

When you bear in mind that some of the cheapest premiums we found were offered by companies that don't provide credit payment plans, the extra cost of paying monthly can be very significant. If it is at all possible, it can be a lot cheaper to pay for motor insurance upfront; if the budget doesn't allow for this, and no other source of finance can be found, then comparing quotes from several price comparison sites, and looking carefully at the toal costs involved and the insurer's terms and conditions (which you should do anyway) will help you make the right choice.

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