Car insurance is often expensive and paying an extra fee or deposit can be a burden. You may be wondering if you can get coverage without paying a down payment first. While there are many different insurance companies offering cheap car insurance, none will give you a policy without any funds in exchange.
Depending on where you live and what car insurance company you select, you may not have to pay any more than the first month’s premium. In other states, you may have to pay a down payment or deposit before you can secure insurance coverage.
Read on to learn more about how to find car insurance with no down payment.
How to Find Car Insurance With No Down Payment
Car insurance policies are generally written for a six or twelve-month term. When you purchase your policy, you will have several payment options. You can elect to pay in monthly or quarterly installments or to pre-pay the annual premium upfront. Most insurers can bill you electronically and you can pay your bill with autopay.
Paying your premium in one lump sum is generally the least expensive payment option. Most major insurance companies give policyholders a discount between 5-15% for paying in full. The monthly installment option is convenient — but you will pay for the convenience factor.
“No Down Payment” Insurance
The term “no down payment” means you will not have to pay any extra deposit or funds when you take out your policy above the first month’s premium. It does not mean you can get car insurance without paying anything — just that you do not need to pay anything extra.
It is not possible to get car insurance without paying some portion of your premium first. You may not have to pay a down payment — but you will have to pay at least the first month’s premium.
Consider any down payment or deposit your insurance company requires as part of your annual premium payment. The down payment you make reduces your remaining payments as it goes directly toward paying down the premium. In this way, a down payment or deposit can be a helpful budgeting tool for consumers since it lowers future installment payments.
First Month’s Premium Payment Reduces Fraud
One reason auto insurance companies require some payment toward the first month’s premium is to combat fraud in the industry. Fraud is a significant concern in car insurance, with industry experts estimating insurance companies lose close to $30 billion annually in auto insurance fraud. But the problem doesn’t just affect insurers — estimates show the average US household pays an additional $400-$700 in insurance premiums due to fraud every year.
This helps reduce fraudulent policies where a person takes out an insurance policy only to provide proof of coverage to a government or regulatory agency. When people do this, they do not intend to pay for their policy or actually have insurance coverage. They only want to provide false proof of coverage.
Some insurance companies ask that you only pay your first month’s premium for coverage to become effective. They may refer to this as a down payment or deposit, but what you are really paying for is the first month of your policy premium.
Other insurers only ask for a small portion of the first month’s premium to start your coverage. This good faith payment is your promise to pay. However, the monthly payments for the remainder of the policy term will be higher to make up for the lower first month’s payment.
Remember insurance companies take on the risk of a driver the minute a new car insurance policy becomes effective. Because the risk to the insurer is immediate, the payment must accompany it. No insurance company can stay in business long-term if they assume risks without receiving the premium in exchange.
States Where No Down Payment is Required
Car insurance is regulated by each state, so the rules and regulations vary around the country. Not every state allows insurance companies to write a car insurance policy with no down payment. Some states require a good faith down payment on policies to show customers are serious about having insurance coverage.
Some states that allow some consumers to purchase auto insurance without a down payment include:
- Arizona
- California
- Florida
- Georgia
- New York
- Oklahoma
- Washington
Not Every Driver Will Qualify
Even for drivers living in states that do not require a down payment for car insurance, some drivers will not qualify. They will have to pay some deposit or down payment along with the first month’s premium to start their coverage.
Some circumstances where insurers may require an additional down payment or payment of the full premium upfront are:
- Drivers who are being insured on a SR-22 form
- Drivers with poor credit or driving history
- Drivers insuring very expensive, custom, high-end, or rare vehicles
- Drivers who present a higher risk than the average driver
Find the Best Rates on Cheap Car Insurance With No Down Payment
To find the best rate for your situation, start with gathering basic information you will need to get an accurate quote. Getting quotes from several different insurance companies is the best way to ensure you get the best rate. Shopping around means insurers compete for your business so you can find the right coverage at the right price.
Have these simple details handy and try our free online quote tool to compare rates from top insurers:
- Your zip code at home
- Make, model, and year of your car(s)
- Your annual mileage
- Demographics like your address, birthday, and when you were first licensed
- Your credit score range (excellent, good, fair, poor)
- A general idea of your desired coverage limits and deductible amounts
- Your driving history
You will need details for each vehicle and driver you would like to insure. If you are only insuring yourself, you only need to gather your details.
Lots of Ways to Save Money on Car Insurance
Car insurance rates have been on the rise in recent years across the US. Drivers in Louisiana, Michigan, and Florida can expect to pay the highest premiums. But even with increasing costs, there are several different ways to save money on your car insurance.
Increase your deductible
Your deductible is the amount you agree to pay for a covered loss. Your insurer will deduct your deductible from any payment it makes for a claim. Policyholders have a choice of many different deductible amounts, with the most common being $500 or $1000.
The greater your deductible, the lower your premium payment in most cases. This is because you are retaining a greater portion of the risk by choosing a higher deductible.
It is important to select the right deductible for your situation — remember a deductible is the amount of the loss you are comfortable paying for. You will need to contribute this amount if you file a claim. Only select a deductible you are sure you can afford.
Each type of coverage on your car insurance policy will have its own deductible you will need to pick. For example, your comprehensive coverage and collision coverage can have different deductibles if you would like.
Be a safe driver
Having a clean driving record with no history of at-fault accidents, tickets, or infractions is one of the best ways to keep your premiums low. Tickets and accidents can stay on your driving record for a long time, affecting your insurance costs long after you have paid off the ticket.
Drivers with serious infractions, like DUI/DWI charges, may need to carry SR-22 insurance (or FR44 in Florida and Virginia), which usually means higher insurance costs. Not all insurance companies will issue the SR-22, so it can be more challenging to find insurance at a reasonable rate. Being a safe driver keeps your rates lower and your options for coverage higher.
Grow your credit
Ignoring your credit score is a financial mistake that can affect every aspect of your life, including your auto insurance costs. While controversial, most states allow the use of an applicant’s credit score to affect premium costs. Some states have ruled against the use of credit scores in application decisions and premium calculations, including:
- California
- Hawaii
- Massachusetts
- Michigan
- Washington
Other states are likely to follow suit and have enacted some consumer protections already. The NAIC is committed to eliminating discrimination in insurance —and its efforts could cause more legislation to be passed in other states prohibiting the use of credit scores as a rating factor.
But until then, and unless you live in a state where credit is not a factor, make sure you keep your credit score high. Making payments on time and reducing your income-to-debt ratios are helpful strategies for managing your credit score.
Find all the discounts
Insurance companies offer consumers many discounts. Make sure to take advantage of every discount possible to lower your premium.
Paying your annual premium in one lump sum when you take out your policy is one discount. Most insurance companies also give policyholders a discount for opting into electronic statements and for enrolling in autopay.
Available discounts vary by insurer, but many insurance companies offer common discounts like these:
- Bundling multiple policies together with the same insurer, like your home and auto policies
- Multiple vehicle discount
- Telematics discounts
- Safe driver or accident-free discount
- Defensive driving course discount
- Senior citizen discount
- Good student discount or students away from home discount
- Military or veterans discount
- Loyalty discount
- Discounts based on your vehicle’s safety features, such as antitheft devices or antilock brakes
- Affinity group discounts, like those offered through AARP, your alumni association, or vehicle brand
Check with your agent or insurance company for more discounts.
Shopping around is the best way to make sure you get the best rate on your car insurance. Try our free online quote tool to quickly compare rates from all the top insurers. Input your information once to see rates and policy options in your state.
Usage-based Insurance
If you don’t drive very many miles each year and are a safe driver, consider a usage-based insurance policy. This concept of pay-as-you-drive insurance has taken off and lots of major car insurance companies now offer usage-based policies. People who drive fewer than 10,000 miles per year and have safe driving habits may save money with this type of policy.
Usage-based policies charge a base rate and a per-mile rate to their policyholders. The base rate is determined by actuaries using data similar to other insurance policies — driving history, credit score, demographics. The per-mile rate is a charge for each mile driven. Most usage-based policies only count the first 250 miles driven per day, so taking a road trip doesn’t end up costing an arm and a leg.
Some usage-based policies collect driving behaviors, such as acceleration, hard braking, time of day, and handheld mobile device usage in addition to the number of miles driven. Insurers use mobile apps or plug-in devices to monitor driving habits for a period of time, then offer a discount based on the results. But if your driving behaviors don’t warrant a discount, some carriers may increase your rates.
Drivers can save money when they don’t drive as many miles and when their driving habits match their insurer’s algorithms. Some insurance companies offer a discount of 5-10% simply for enrolling in the program and agreeing to share your data — and with some insurers, the discount remains for the policy term even if you remove the telematics tracking after your trial period ends.
The Bottom Line
When it comes down to it, “no down payment” car insurance is a myth. You can get cheap car insurance and only pay your first month’s premium, or part of your first month’s premium — but you will have to pay something to initiate your policy.Â
Shop around to find the best rates for your situation by using our easy, free online quote calculator. Comparing rates is the best way to save money on car insurance.
External Links:
- https://www.iii.org/article/background-on-insurance-fraud
- https://www.iii.org/fact-statistic/facts-statistics-auto-insurance
- https://content.naic.org/cipr_topics/topic_telematicsusagebased_insurance.htm
- https://www.irmi.com/term/insurance-definitions/good-student-discount
- https://www.irmi.com/term/insurance-definitions/usage-based-insurance-ubi