If you’re buying a new car, “no-down-payment” car insurance, widely touted online, could be appealing. After all, your budget may be stretched to the max, and making a big car insurance payment on top of that might seem next to impossible.
Unfortunately, the term “no-down-payment” is something of a misnomer. Any major insurer will require that you pay some money upfront before it will cover you—whether the insurer calls that a down payment, a first payment, or something else. Even so, you may be able to find car insurance with a relatively low initial outlay. Here is how to go about it.
- "No-down-payment" car insurance is a misnomer. You'll have to make some kind of payment upfront in order to obtain coverage.
- However, you may be able to start your coverage by making just the first month's payment.
- Generally speaking, paying for insurance in one lump sum is cheaper than paying in installments.
- You can reduce your insurance costs by choosing the right coverages and deductibles and also asking about discounts.
What Is “No-Down-Payment” Car Insurance?
In many cases, websites that advertise no-down-payment car insurance are misleading—or worse. When legitimate websites refer to no-down-payment car insurance what they often mean is car insurance that requires no more money upfront than the first monthly payment on your policy, which can vary from insurer to insurer and state to state. That’s the definition we’ll use here.
Before you decide whether or not to purchase “no-down-payment” car insurance, it's important to consider the other costs that come with owning a car. If you intend to take out a loan to buy a new vehicle, an auto loan calculator can help you determine what factors could be tweaked to lower your monthly payment.
Pros and Cons of “No-Down-Payment” Car Insurance
Auto insurance policies are typically sold for a term of six months or a year, with the option to renew them after that. Generally, you’ll have a choice of paying the entire premium in a lump sum or as a series of monthly installments. When you take out a policy by making only a first month’s payment, you’ll reduce your initial out-of-pocket costs. However, many insurers charge fees for monthly payments, or offer discounts for lump-sum payments, so it’s generally cheaper in the long run to pay the whole bill upfront. Of course, not everyone can do that.
Where to Find “No-Down-Payment” Car Insurance
To find a policy with a minimal initial payment, you'll need to shop around. You can get price quotes either directly from insurance companies or through comparison websites that feature a variety of insurers. But before you buy any policy, make sure you’re dealing with a reputable company.
Here are five ways to check out insurance companies:
- Go to the major credit-rating agencies. A.M. Best and Fitch Ratings, for example, grade insurers according to their financial health. Knowing that your company is financially solid gives you some assurance that it will be able to pay up if you ever have to file a claim. This may be more important with insurance you plan to keep for many years before you’re likely to need it—such as life insurance or a long-term care policy—but it’s still a useful indicator of the kind of company you’re dealing with.
- Check with the Better Business Bureau. Its Search Businesses and Charities tool can help you locate auto insurers that serve your area. It also grades the companies and lists any complaints it has on file about them.
- Visit the National Association of Insurance Commissioners (NAIC). Its Consumer Information Search tool lets you look up a particular insurer, learn whether it’s licensed to do business in your state, and see any complaints the NAIC has on file.
- Explore state insurance departments. Some of them publish consumer complaint data on their websites. What’s more, if you’re having difficulty finding coverage because of a poor driving record, your state insurance department may be able to help. A number of states have special insurance programs for people who are considered high-risk drivers and otherwise would be unable to get insurance.
- Consult an independent insurance agent in your area. Independent agents work with more than one insurance company—unlike so-called “captive agents” who represent a particular insurer. They can recommend reliable companies and help you comparison shop. An independent agent should also be familiar with the insurance rules in your state, including the types of coverage you’ll need and the minimum required amounts.
You can reduce your insurance costs by opting for no more than your state's minimum liability requirements, but that could be very risky if you're ever in a serious accident.
How to Save on “No-Down-Payment” Car Insurance
If your goal is to make only a first month’s payment to begin with, you can reduce the size of that payment by following these basic guidelines for cutting your car insurance costs.
Consider your coverage limits
An auto insurance policy consists of several different types of coverage. While the rules vary from state to state, you’ll generally be required to carry some amount of bodily injury and property damage liability coverage in case you’re in an accident in which people or property are harmed. States set minimums for how much liability coverage you must carry, and you’ll save money by buying no more than the minimum. The risk, of course, is that you might get into an accident where those levels of coverage prove inadequate and find yourself involved in a costly lawsuit.
Raise your deductibles
Auto policies also include two types of coverage to protect your car: collision, for accidents involving other vehicles, and comprehensive, for destruction caused by fire, vandalism, and other calamities. If you own your car free and clear, these coverages are usually optional, but if you’re still paying off a car loan or lease, they may be required. One way to reduce their cost is to agree to a higher deductible—the amount you’d have to pay out of pocket after an accident. According to the Insurance Information Institute, for example, increasing your collision and comprehensive deductibles from $200 to $500 could reduce your cost by 15% to 30%, while opting for a $1,000 deductible could save 40% or more. Of course, you’re taking the risk that you’ll have that much spare cash on hand if you’re ever in an accident.
Bundle your insurance with one carrier
If you already have a homeowners policy or other insurance, ask your insurer if it offers reduced rates to people who also buy their car insurance there. You might still get a better price by shopping around, but this is one way to save a little money without a lot of effort.
Ask about discounts
Many car insurers offer a long list of discounts to potential customers, typically reflecting a reduced risk. If your car has antitheft devices, for example, you may be eligible for a break. Ditto if you’ve taken a defensive driving course, been accident-free for three or more years, or if you don’t plan to put a lot of miles on the car. The better your credit record, the lower your car insurance rates are likely to be, as well—and the more likely you’ll qualify for “no-down-payment” car insurance in the first place.