No Down Payment Car Insurance

Most auto-insurance companies offer a monthly payment option to start a new policy. This can be helpful if you are on a tight budget, however, most companies require you to pay a down payment before coverage can begin. Down payments are typically 10-30% of a 6-12 month policy, depending on which length you choose.

Insurance companies require down payments to discourage drivers from signing up for coverage just long enough to get the vehicle registered, then canceling it. Without a down payment, this would create too much liability. Companies take a financial risk in insuring you, and they recoup some of that risk by collecting as much as possible on the front end, even with monthly payments.

Where they make their money is in collecting premiums over a long period without any claims being filed. A down payment helps ensure you will stay with that company for six months to a year minimum. In addition to reducing their potential liability risk, companies use the down payments for costs involved with setting up a new policy. Your driving record needs to be purchased. In many cases, there is also a credit report requested, at a cost to the company. The down payment lessens the company’s risk overall, making it an important part of most insurance policies.

What is no Money Down?

No down payment car insurance is a policy that does not require you to make a down payment to get the policy started. This can happen in one of two ways.

A Budget Friendly “No Down Payment” Method

Some companies offer a no down payment method of buying car insurance that isn't actually no down payment but is less expensive to start because they don’t require the down payment up front. A down payment is typically a percentage of a six month policy and is paid up front, along with the first month's premium.

In this no down payment method, they collect only the first month's premium and apply it as your down payment, and trust you not to cancel the policy following that first month. They might also ask you to pay a small administrative fee up front. They actually do collect a “down payment” (as a percentage of the whole plan) in the form of an additional few dollars on your monthly premiums to make up for not collecting it at the beginning. But, if you are in need of coming up with the least amount possible to get the coverage started, this could work for you.

This method of no down payment auto insurance is offered by many companies.

True No Down Payment Method

In a true no down payment scenario, you will pay the first month's premium and continue to pay monthly for the length of the policy. There is no additional dollar amount attached to each month’s premium to make up for the lack of a down payment. In this case, the company is willing to risk the liability with the hope that you will maintain coverage with them and continue to renew and pay each month. This method of purchasing insurance is not common and not offered in all states, or by most companies. If offered, it will be based on the company's satisfaction with your credit rating, driving record, past auto insurance history, and other factors.

How Much is a Normal Down Payment?

The down payment will typically range from 8-33% of the cost for a six month policy.

Where you land in that range depends on several factors including:

  • Company policy
  • Driving record
  • State and sometimes county
  • Insurance history

If the company guidelines and the above factors determine your down payment will be 20% of the policy cost, that is what you are required to pay, in addition to the first month's premium and administrative fees, before the coverage can begin.

For example, if you buy a six month policy and the total premium is $354, your down payment will be $70.80 in addition to the first month’s premium. If you buy a 12 month policy and your total premium is $708, your down payment will be $141.60.

Your premium amount and guarantee of coverage lasts the length of the policy, as long as premiums are paid. This means that you cannot be dropped mid-policy, even if you file claims. This is an important factor in choosing whether to purchase a six or 12 month policy.

Where is This Type of Insurance Available?

No down payment insurance is not available everywhere. Each state has its own state-operated insurance commission and that commission determines what will and won't be offered in that state. The decisions are made based on many things including the number and overall dollar amount in claims, policies issued, and other elements during recent years.

Only seven states currently offer no down payment insurance options:

  • Arizona
  • California
  • Florida
  • Georgia
  • New York
  • Oklahoma
  • Washington

Who Has Access to No-Down Payment Insurance?

Simply residing in the one of the above states is not enough to have access to no down payment auto insurance, though it is the first requirement. In these states, companies that offer no down payment auto coverage must meet certain criteria in order to offer this option.

Your driving record is important. If you have received an above average number of traffic citations in recent years, you become a higher liability. Therefore, the company might hesitate to offer you coverage without a down payment. In addition to your driving record, including tickets and accidents, some companies may require a good credit rating. While your credit rating doesn't impact your driving record, many companies believe that a good rating shows a higher level of personal responsibility, which to them translates to a reduced financial risk overall.

How Does a Down Payment Affect the Price of Insurance?

In most cases, a ‘no down payment’ insurance ends up costing more than policies that require you to pay a down payment to purchase. Most companies that offer no down payment coverage include the down payment by charging a higher monthly premium than if you paid a down payment initially. For example, your monthly premium on a non-down payment policy might include additional fees, which would normally be covered by the down payment. Those fees generally add up to more than it would have been if you had paid it at the front end.

For example, you might have a six month policy for $300. However, with no down payment, the company determines your monthly premium is not going to be $50. They are going to tack on an additional $10 fee each month. This means that, at the end of six months, you will have paid $360 for the coverage. If the down payment for you would have been 10% of the policy price, you would only pay $330 over that same six months. In this case, no down payment insurance will cost an additional $30. Unfortunately, if you live in a city or somewhere else with significantly higher premiums, you likely won’t get off so easily on rate increases. No down payment insurance can cost you hundreds of extra dollars in the long run.

How Else Can You Save on Car Insurance?

Though some factors are out of your control due to state regulations, there are steps you can take to make sure you are getting the best deal possible on your auto coverage.

Shop Around :

The cost of insurance, for identical coverage, can vary widely among different companies. If you want to find the best deal possible, be sure to shop around. NOTE: Be sure that you are comparing identical coverage amounts and deductibles across all companies so that you are getting accurate apple-to-apple price quotes.

Choosing the Coverage That’s Right for You :

By selecting the proper coverage for your needs, you are ensuring the best plan for yourself. Check different prices with different deductibles from each company and choose the deductible you can comfortably afford if something happens. Also, decide whether you need liability only or full coverage. If you are still paying your car off, you may be required to carry full coverage for the life of the loan, with the lender named as lien holder on the title. But if your vehicle is paid off, you can decide whether to pay for full coverage or liability only. Be sure to consider the age of the vehicle, cost of replacement parts, etc. in making this decision.

Think Before Making a Claim:

You can keep your premiums down by reducing the number of claims you file. Insurance carriers are all about limiting financial risk. Therefore, they are going to charge more for someone who has filed past damage claims. Insurance is there to help when needed, but if you want to keep your premiums down, you should consider not filing claims for small things, like a scratch, broken side mirror, or other things that you can easily repair on your own.

Final Thoughts:

Auto insurance or a substantial bond is required in every state. In addition, it can give you peace of mind to know that, if something happens you have financial coverage. One accident can run into the tens of thousands of dollars even if there are no injuries. Shopping around, keeping your driving record clean, and selecting the proper coverage for your situation are all things you can do to be sure to have the coverage you need, without paying for coverage that you don't need.

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