How No Down-Payment Car Insurance Works — and How to Sign Up

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Owning a car is expensive. And while you can’t do much about costs like depreciation and taxes, there are ways to help you manage the cost of your insurance payment. 

The average cost of full-coverage car insurance was $1,211 in 2020, according to data on cars surveyed by AAA. That’s a decent chunk of change that some consumers don’t have upfront.

“If you’re on a tight budget and can’t swallow the entire year’s payment, breaking it up either semi-annually, quarterly — or even monthly can help keep your budget intact,” says Jack Gillis, the executive director of the Consumer Federation of America. 

This payment method, sometimes known as “no-down-payment car insurance,” allows you to establish coverage with a low initial cost. Here’s what to know. 

What Is No Down Payment Car Insurance?

No-down-payment car insurance allows you to buy a full auto insurance policy, but pay for it in installments instead of a lump-sum premium. 

Advertisements for no-down-payment car insurance can be a little confusing and consumers might think they can activate a policy without making a payment at all. In reality, you usually have to pay for the first month when setting up a car insurance policy. A no-down-payment plan can help you spread out costs, but there’s a downside: “Insurance companies typically add a small additional fee,” Gillis says. 

How No Money Down Car Insurance Works

Depending on the car insurance company, your options may include annual, quarterly, or monthly payments. 

Let’s say you want to buy a six-month policy and you choose to make monthly payments. The car insurance company usually takes the full cost of a six-month premium, splits it into six equal payments, and then charges you for the first month to activate the policy. They may add a few dollars to each payment to cover administrative costs, too. Over the next five months, you’ll make payments to keep the coverage in effect. 

Who Can Buy Car Insurance With No Money Down? 

Car insurance companies typically don’t require a deposit or down payment, but you’ll usually need to pay upfront for the first month’s payment. “No-deposit car insurance” usually refers to policies you can buy in one-month increments. Basically, no matter how good the deal sounds, it’s not possible to buy car insurance without making some form of payment because insurers can’t offer free coverage instantly.

Fortunately, most insurance companies give policyholders the option of making installment payments, says Carole Walker, executive director of the Rocky Mountain Insurance Association.  

Where Can I Find Cheap Car Insurance?

When you’re looking for cheap car insurance, “It’s very tempting to just say, ‘OK, I’m going to carry less insurance to save money,’” Walker says. “But it’s never a good idea to cut corners.” 

Take a look at your overall financial situation and how often you drive to figure out how much coverage to buy. Almost every state requires you to insure your car. You might need only the minimum coverage required — or you might be better off with a full-coverage insurance policy.

Pro Tip

When you’re shopping for cars, remember that the type of car you own can affect the price of your premium, and plan accordingly.

To find the best low-cost policies, NextAdvisor looked at 25 car insurance companies and compared premium costs, customer satisfaction, and discounts to narrow down the cheapest options. According to our results, the following car insurance companies offer the best rates without compromising on quality:

  • USAA is available in every state, but offers insurance only to a specific demographic: active military members, their families, and veterans. This insurer earned one of the highest claims satisfaction ratings in the country, according to J.D. Power, and offers affordable coverage with an average policy of $1,225 per year.
  • Erie Insurance is a regional company that offers car insurance in 12 states with an average annual premium of $1,233. Erie also offers a host of discounts, accident forgiveness after you’ve been a customer for three or more years, and a “disappearing deductible.” 
  • Travelers offers car insurance across 42 states and the District of Columbia, with an average annual premium of $1,325. Some of its standout features include a discount for owning or leasing a hybrid or electric car, and a multi-policy discount of up to 10%.
  • Auto-Owners provides car insurance in 26 states with an average annual premium of $1,351. It boasts the third-highest rating in claims satisfaction in J.D. Power’s 2020 survey, and offers a long list of discounts that can help you further drive down the costs of car insurance. 

Steps to Getting Cheaper Coverage Through a Payment Plan

There are plenty of ways to save even more on no-down-payment car insurance. Here’s what to do if you’re on a budget: 

Drive safely

It may be obvious, but it’s true — safe driving is the “number one way to save on car insurance,” Walker says. That’s because safe drivers pose less risk for the insurance company. Generally, that means you should follow the speed limit, don’t drive under the influence, and avoid multitasking if you want to maintain a good driving record. 

Your car counts toward safe driving, too. “The insurance industry looks at a vehicle’s propensity to be in an accident and charges accordingly,” Gillis says. For example, he adds, the Chevy Camaro tends to be in far more accidents than the Ford Focus, so your insurance cost will rise if you own the former. When you’re car shopping, consider how your selection will influence your rates.

Shop for the best deal

One of the best ways to find affordable car insurance is by “shopping around for insurance before you receive your renewal,” says Mark Friedlander, director of corporate communications at the Insurance Information Institute. “But you want to make sure that it’s an apples-to-apples comparison, so that the coverage is exactly the same on each policy.” 

Comparing rates with multiple companies takes just a few minutes and could save you hundreds of dollars per year. Don’t forget to check customer reviews, too. You’ll want to know if the insurer can process claims quickly and generally provides excellent customer service.

Increase your deductible

When you file a claim, the deductible is what you pay out of pocket before your insurance kicks in. You can usually choose from several deductible amounts, ranging from around $200 to $2,000, and picking a larger one will shrink your monthly premium. But there’s a catch. “Just make sure you have enough money set aside to pay the higher deductible in the event you have a claim,” Friedlander says.

Ask about discounts

Even if you receive a good rate quote, “you might be missing out on ways to save,” Friedlander says. Most car insurers offer a full menu of discounts that can help you lower your monthly premium. These vary with every company, and some discounts are unique to a specific insurer. 

Paying for the entire premium upfront — instead of each month — is often one way to earn a discount, though that will come with a high price tag and “not everyone can afford that within their budget,” Walker says. But if you can pay upfront, “it does save you from having to think about the monthly payment, and you get the discount, too.”

When you’re shopping for car insurance, don’t be shy. Look for the company’s discount menu or call them and ask about all the discounts you qualify for. 

Improve your credit score

Depending on where you live, your credit score can play a role in how much you pay for car insurance premiums. Some states, like California and Hawaii, don’t allow insurance companies to take credit scores into consideration when setting rates. If you do live in a state where insurers can pull your credit scores before offering coverage, check your score and rebuild or repair it as necessary before applying for coverage.  

Set up autopay

If you choose to pay for car insurance in installments, ask your insurer if they offer an autopay discount. The insurer will either take the monthly payment out of your checking account or charge your credit card automatically each month on the due date. 

This method is convenient and helps ensure you’ll make on-time payments. Some insurance companies provide yet another discount when you consistently pay on time. Just be sure you have enough money in your account (or enough room on your credit card) to cover the payment when it occurs. 

Bottom Line

While car insurance can be expensive, breaking up the cost can make it more affordable. With no-down-payment insurance, you’ll typically need to pay for the first month upfront, then spread out the rest of the payments. But you can help drive down the costs of car insurance by comparing deals, asking about discounts, improving your credit score, and increasing your deductible.