Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Mar 16, 2022

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Key Takeaways

  • Car insurance policies require a portion of the rates to be paid upfront
  • If you can’t afford to pay upfront, then pay-per-month auto insurance is an option
  • Pay-per-month auto insurance requires an initial deposit, but is usually a reasonable amount

Purchasing a new auto insurance policy can be challenging. There are many coverage options available and countless auto insurance companies from which you can choose.

In most cases, you need to pay a significant amount upfront to start an active policy. This payment may include the first six months or the entire year paid in full. Some leading auto insurance companies offer pay-per-month car insurance, which requires a deposit or down-payment paid upfront.

When shopping for cheap full coverage insurance with no down payment, you might not find many viable options. Be wary of companies offering special deals like, “instant auto insurance no down payment required.” They’re unlikely to be legitimate offers.

To find the most affordable full coverage car insurance policy to fit your needs, you should compare quotes from top car insurance companies in your area.

Why do auto insurance companies require a down payment?

It’s frustrating that car insurance companies require a significant upfront payment that can be unaffordable, especially for individuals who just purchased a new car.

Many car insurance companies like GEICO and Progressive allow you to break the rates into easy monthly payments. Pay-per-month policies still require a deposit to be made the first month before the policy starts.

Why is it so important to pay upfront before you get car insurance? A significant reason car insurance companies require an upfront payment is to prevent unscrupulous consumers from taking advantage of them.

By requiring some upfront investment, insurance companies can minimize the risk of loss.

It is not uncommon for drivers to sign up for a car insurance policy only to prove they have the required insurance. This ploy could be used to fool the financial institution that serves as the lessor of the vehicle. It may also be used as a token to show government authorities that they have legal minimum coverage. By requiring some upfront investment, insurance companies can minimize the risk of loss.

If the insured has paid a portion of the rates at sign-on, they’re less likely to ditch the policy prematurely. Even if they stop paying, the car insurance company has already collected a portion of the rates upfront, meaning it’s not as big of a loss.

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Are pay-per-month car insurance policies cheaper?

You should be wary of any insurance company that advertises a car insurance policy with no deposit. No auto insurance company offers proper “no deposit” insurance. This label has been used as a marketing tactic for some companies when advertising their pay-monthly car insurance.

Regardless of the auto insurance company you’re working with, there will still be an amount of money due before the policy is valid. Any insurance company that insists no money is due upfront is more than likely a scam, and you should stay far away from them.

It is common to overspend on car insurance by selecting a pay-monthly option unknowingly.

Remain diligent in ensuring that you aren’t paying too much for car insurance. It is common to overspend unknowingly on instant auto insurance by selecting a pay-monthly option. This structure can be more expensive because the policy hasn’t taken away that initial deposit but instead spread it out over the annual term of coverage. Monthly rates will include additional fees and interest.

You are almost always getting a better deal if you pay for car insurance upfront, be it annually or semi-annually. Sometimes this difference in overall investment can be as low as $20, but it’s often more than $100 per year. If you can pay a significant portion of your rates upfront, you will save money in the long term.

Why is auto insurance with no deposit more expensive?

Let’s say you’ve just signed up for an instant auto insurance policy that offers both traditional payment options and pay-monthly. After exploring their offerings, you learn that a full year’s coverage would cost $2,200 if paid upfront. Looking to save some money, you read their pay-per-month options.

With a 20% deposit of $440, your monthly payments would be around $147 a month. You might consider a low deposit option if you balked at this higher upfront cost. Some car insurance companies offer $20 down payment car insurance. If you look into one of these options, thinking you’ll save money, you might learn that the monthly rates can be quite a bit more expensive due to interest and fees.

When it comes time to renew, you would likely get stuck in another more expensive pay-per-month structure.

If you were to take the $20 down car insurance, you learn that you’ll be responsible for $200 per month for your rates. This cost discrepancy doesn’t look like a big difference at first glance, but a bit of basic math shows you that you will end up spending $200 more over the year of your coverage.

Even if this still sounds pretty tempting, splitting up this higher payment over a more extended period can set you back financially. One of the unfortunate drawbacks is not saving money over the length of your policy. When it comes time to renew, you would likely get stuck in another more expensive pay-per-month structure.

You should pay the larger amount upfront in most circumstances, making cheap full coverage auto insurance with no down payment an unrealistic goal. If you cannot afford to pay for an entire year up front, then talk to your car insurance agent about the best options for saving money.

What is the best way to save money on car insurance?

Saving money on car insurance is not a quick-fix deal. Sometimes it’s true that paying less can cost you more in the long term. So what is the best way to save money on car insurance?

Many car insurance companies offer discounts for various achievements like safe driving practices or good grades for young drivers.

Furthermore, some policies like pay-per-mile car insurance can help save you money if you drive less than the national average of around 10,000 miles a year.

Aside from company-specific discounts, the best way to save money is by doing research. Find out precisely the coverage that you need and then compare options.

There are many car insurance companies in the United States, all with varying coverages and costs. By finding out which car insurance company in your area offers the coverage you need, along with the discounts to bring the rates into a manageable number for you, you can save money. This approach is a more sustainable savings strategy than looking for the cheapest car insurance that doesn’t require a deposit.

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Is no down payment auto insurance legit?

Buying car insurance is a pain, and there’s so much to research when finding the right car insurance for you.

When it comes to saving money on your car insurance, you should beware of going with options that sound too good to be true. No down payment car insurance doesn’t exist, and you should exercise caution when researching any company that claims to offer this.

Furthermore, low down payment car insurance can end up costing you more in the long term. Shop around for the best full coverage car insurance with multiple companies and you should be able to find something that works for your budget.

After reading this article, you should understand more about how deposits work for car insurance to help get you started on your search for the right car insurance.

To truly find the best deal on your car insurance rates, it is essential to research and compare car insurance quotes.