What is a car insurance down payment?

If you've seen ads for "no money down car insurance" or "car insurance with no deposit", you may wonder what that means and if it's really a good way to save on car insurance.

A car insurance down payment is the amount of money required to start the policy. No car insurance company will provide coverage unless some amount of premium is paid, but some require less up front than others. Most policies advertised as no down payment car insurance are really offering to start a policy with the minimum amount of payment possible, usually one month's premium.

How much is a car insurance down payment and is there a way to reduce it? Read on to learn more about how down payments work with car insurance.

What is a down payment on car insurance?

Car insurance down payments don't work the same way as a down payment on a loan. In that case, you pay an upfront amount to reduce the overall amount of the loan and reduce monthly payments. 

A down payment on your car insurance is really just the first payment that gets the policy up and running. In many cases, it's the first month of coverage, but in some cases the company will charge more. It doesn't change the amount of the premium overall, just much you pay when you buy the policy.

Can you get car insurance without a down payment?

While there are some companies that offer car insurance with a low down payment and keep that first payment minimal, you will always have to make a payment to get car insurance.

So, is there no down payment car insurance? Not really. Although it's advertised as a way to get cheaper car insurance, it doesn't really work that way. There are better ways to save, such as shopping around to compare rates.

If you're on a tight budget and need to spend as little as possible to get car insurance in place, finding an insurance company that only requires the first month upfront can be helpful. Bear in mind, though that no down payment doesn't mean you're getting the cheapest rate. Make sure you compare quotes to make sure you don't pay more in the long run,

Why do insurance companies use down payments?

Insurance is required by law to drive legally. If a car insurance company issues a proof of insurance, the driver can use that document to register a car, get or reinstate their license or avoid a ticket when pulled over.

If insurance companies issued that proof without taking a payment, the driver could walk away with proof of insurance and never actually pay for coverage. Although it would catch up with them eventually, it could cause headaches in the meantime. And if the driver were to be involved in an accident, things could get complicated.

By requiring a payment, insurance companies avoid this sort of scenario.

How much is no down payment car insurance?

The cost of the insurance policy itself isn't really related to how you pay, although you may have to pay some fees for making monthly installments. Those fees aren't part of the calculated premium.  Your car insurance rates are based on things like your location, your driving history, and the type of car you drive. Whether you make a down payment or not doesn't affect your overall premium.

Since no down payment really just means you'll have to pay a minimal amount to start coverage, that amount varies based on the premium and the company. 

Drivers with a bad credit history or in need of an SR-22 filing are likely to be required to make a larger down payment or even to pay for the term in full.

Car insurance payment options

The best option is to pay your policy in full up front, which comes with the bonus of receiving a “paid in full” discount that can be 5 to 10 percent.

If you can’t afford to pay for the whole policy at once, you’ll need to set up a payment plan. As part of a payment plan you will need to:

• Make a down payment (typically runs from 8 to 33 percent of your total policy premium).
• Set up a payment plan.
• Be prepared to pay an installment fee (typically between $3 to $10 per payment)

Over a year, if you pay monthly, fees can quickly add up.

The types of payment accepted vary, too, but typically include:

• Check or money order
• Bank bill pay
• Electronic funds transfer (EFT) – automatic online payment
• Credit card
• Debit card

The way in which you buy your car insurance may limit your payment method.

For instance, if you buy online with an insurer that doesn’t have an office in your area, then you won’t be able to pay in person. You need to pick the payment method that is best suited for your lifestyle so that you’ll be able to pay on time. There are no grace periods for car insurance bills. (See “When you forget to pay the car insurance bill.”)