The Pros and Cons of No Deposit Car Insurance

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Joel Ohman
Founder, CFP®

UPDATED: Jul 25, 2016

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Here's what you need to know...
  • Car insurance that does not require a deposit often costs more over time
  • There are more companies offering no deposit car insurance than ever before
  • For many people, the pros of not having to include a down payment outweigh the cons

Have you ever gone online and gotten a quote for car insurance, only to find out that you have to put down a large deposit in order to get monthly payments that fit your budget?

This scenario has happened to virtually everyone who has ever looked for car insurance. The good news, however, is cheap, no deposit car insurance is available.

It does seem underhanded to receive a quote for a rate, only to learn that you have to deposit two or three months’ worth of money to qualify for that price.

In some cases, if you don’t have the deposit, then you cannot purchase the insurance.

For a long time, nearly every car insurance company required a deposit to purchase insurance. There were even some that didn’t accept payments at all and required you to pay six months in advance.

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Today, however, there are a lot more insurance companies to choose from. Car insurance companies have to offer more things to appeal to potential customers. One benefit that most insurance companies are offering today is a flexible payment option.

Many insurance companies now allow you to pay monthly, quarterly, twice a year or once a year. This flexibility makes buying auto insurance more affordable for many people.

Pros to Buying No Deposit Car Insurance

A jar full of coins labeled "Budget"

One of the biggest benefits to buying cheap, no deposit car insurance is that it makes the payments more manageable.

If you can find cheap insurance, you can afford to purchase the coverage that you need.

Another benefit is that, when you are presented with a quote that shows your monthly premiums, you know that this is all you are going to need. For example, if your monthly premium is quoted at $65, then you won’t need $130 to start your policy.

There is less confusion when you purchase a cheap, no deposit car insurance policy. At the beginning of every month, you pay the premium to cover that month. Once the premium is paid, you don’t owe another dime for the rest of the month.

This type of payment structure also helps if you decide to change car insurance companies. You don’t have to figure out where you are in your policy because your first day each month starts on the day that you pay your bill.

Lastly, most companies that allow you to pay monthly will also draw your payment out of your bank account for you. This option may not be a plus for everyone, but for many people, not having to think about when that bill is due can be quite a relief.

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Cons to Buying No Deposit Car Insurance

Sometimes cheap is just that — cheap. In some cases, you get what you pay for, and you could end up buying an insurance policy from a company with a lot of hidden fees.

What’s more, some companies place a clause in their policy that they can raise your rates if they deem your initial application to be incorrect, which can lead to higher rates than initially expected.

Another downside is, when you don’t pay a deposit, you usually pay more for your monthly premiums. While typically you will spend $30 to $40 more every six months for the no deposit monthly payment option, for many people this could make the difference in what they can afford.

When you choose a cheap, no deposit car insurance plan, most insurance companies require you to pay directly from your bank account, which negates the risk of defaulting on a payment.

For many people, this would be a plus; for some, however, it’s negative because it offers no wiggle room if you are short on your premiums for the month.

Some people don’t like to give any company access to their bank account for direct withdrawal because this leaves them vulnerable to payment mistakes.

For example, there is the possibility that the computer doesn’t see a payment and it withdraws the payment twice. Or, if you cancel your account, if it isn’t updated quickly enough, the insurance company may withdraw the payment even if you are no longer a customer.

While these things don’t happen to everyone, it is an unfortunate fact that it happens far too often.

Some insurance companies will allow you to pay with direct bill pay, which means you control the transactions rather than the insurance companies, but most won’t if you choose the no deposit option.

In some cases, if you choose no deposit car insurance, your rates will increase more often.

The reason for this is that these companies renew your policy every six months instead of once a year. Any changing risk factors in your area or any claims that you have made will affect your insurance costs faster.

By the same token, this also means if the risk factors change for the better, and you don’t have any claims, you could pay less money sooner as well. That means this can qualify for a pro if you are an excellent driver with no claims on your account!

For many people, the pros outweigh the cons. There is a way for them to purchase auto insurance without having to pay hundreds of dollars up-front. That is why so many people are willing to pay a little more over time to avoid parting with so much money in a single transaction.

Where to Purchase No Deposit Car Insurance


Finding less expensive auto insurance is easy these days with the Internet, especially with the advent of free quote tools.

With quote tools, you can compare the cost of several insurance companies all in a single location. However, an area where quote tools may not be able to help narrow down your choices between no deposit car insurance companies and car insurance companies that do require a deposit.

The good news is that it doesn’t matter if the quote tool that you use can manage this for you because it is easy enough to check. You can do the math yourself by checking your total premium with the quoted monthly premium.

Another way to do this is to select simply the link to the insurance company you are considering to see what it says on their website.

The great thing about using a quote tool is that your information is saved so you can go right back to it if you aren’t happy with the insurance company you are investigating. You don’t have to start over either; all of your information is still there.

While it is completely your decision about whether to choose a cheap no deposit car insurance or a cheap car insurance that requires a deposit, you should start right here by using our free quote tool.

Enter your zip code now to compare car insurance quotes from top companies in your area!

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