Pros & Cons of No Down Payment Car Insurance – How Much Extra Does it Cost?

Choosing the right car insurance coverage is by no means an easy task.

After all, you are buying security for your vehicle, yourself, and your loved ones.

The policy has to carry sufficient limits and protect you in many scenarios where something goes wrong.

Furthermore, you want to buy it from a reliable and affordable company.

Note: Illustrated above are quotes for a No Down plan and Paid in Full for six months for a 21-year-old driver in Texas. Only Progressive and Allstate offered substantially lower prices when paid in full. Nationwide is $35 cheaper. State Farm is the same price since they do not offer a discount when paying a premium in full.

Once you’ve chosen an insurer, you will face an equally difficult decision on how to finance the coverage.

You can select to pay the entire premium at the beginning of the term, which is known as making a down payment.

Alternatively, you can opt to pay separately for each month, which is called no down payment car insurance.

Keep in mind that, technically, there’s no such thing as full no down payment. You will pay 1st month’s premium to initiate the policy. 

Insurers will always request that you pay upfront for the first month.

To make this decision more comfortable, I listed all the pros and cons of each payment plan.

Furthermore, I covered some other prudent ways to lower your premium and get the most out of your car insurance.

Advantages of No Down Payment Car Insurance

Flexibility

The main benefit of putting no money down when buying auto insurance is the financial flexibility it offers.

You will not tie a big chunk of your hard earned money for a long time.

Instead, you will be able to cover more immediate expenses such as bills, groceries, rent, or tuition fees.

Note: Illustrated above are quotes for a 40-year-old driver for a No Down plan and Paid in Full. Progressive, Nationwide, and Allstate offer quotes less than 10% cheaper when paid in full. State Farm does not offer discounts for a premium when paid in full.

This payment plan is especially suitable for those who do not have a substantial amount of money saved, or they have more urgent investments planned.

In the end, car insurance is not cheap, with the average cost being $1,429 annually in 2018.

Not everybody can pay such amount in only one installment.

Disadvantages of No Down Payment

Higher Price

Putting no money down always leads to a higher car insurance price.

That’s because insurance companies often invest a considerable amount of the premium payments to bolster profits.

The more money they have at disposal, the greater their potential for investment will be.

On the long run, this leads to the higher annual profits and improved financial strength.

For these reasons, they will charge more customers who choose to pay per month.

The difference is not that significant, ranging from 3% to 10%.

However, it piles up over time.

Note: A 70-year-old driver can find substantial savings with Progressive and Allstate if you pay your premium for six months. With both companies you can get over 12% in savings. Nationwide offers quotes less approximately $30 cheaper than a no down plan. State Farm does not offer discounts for premiums when paid in full.

To get you a more accurate picture, I requested quotes from the four biggest US insurers.

The quote included $50K/$100K/$50K liability limits, together with comprehensive and collision coverages, each with $500 deductible.

I choose the basic MedPay or PIP limits.

Our vehicle was 2018 Honda Accord EX, 4D, used for regular commutes on a daily basis.

Note that results would be different if I changed these parameters.

*In these locations State Farm does not offer a discount for paying the entire premium at the beginning of the term.

Availability

Not all customers can purchase coverage without putting any money down.

Generally, insurance companies do not like their chances with high-risk drivers.

Note: Illustrated above are companies offering No Down vehicle coverage plans for a 30-year-old driver. Farmers, Liberty Mutual, and Nationwide offer quotes approximately 10% cheaper for drivers when you pay in full. USAA offers less than 5% when you pay in full for a six month premium.

That’s why they prefer securing their profits by getting the entire premium at the beginning of the term.

Following driver categories may be denied no money down payment plan:

Drivers with Bad Credit Scores

There’s no better indication to the insurance company that you are unable to maintain financial responsibility than a poor credit score.

That’s why many insurers are hesitant to offer no down payment option to drivers with subpar credit ratings.

Drivers who need SR22 Certificate

Many violations, such as driving under the influence or getting multiple citations in a short period may trigger authorities to request S22 certificate.

A customer with such a driving record is simply too risky for an insurance company to take without the guarantee of down payment.

Owners of Newer or Expensive Automobiles

Such vehicles are expensive to repair or replace and present a greater liability than a regular car.

That’s why insurers will request a customer to pay upfront.

Otherwise, insuring many pricey cars in a short period could put them out of business if an unforeseen event such as natural disaster happens.

This is especially true if the deductible for comprehensive or collision coverage is very low.

Drivers That Cover a Lot of Miles Annually or Live in a Dangerous Zip Code

If you often commute through dense traffic or live in an area prone to car theft, expect your insurer to think twice before granting you a no money down payment plan.

Again, this is pure mathematics, since the probability of total loss is significantly higher compared to a regular customer.

Furthermore, no down payment car insurance is not available across the US.

At the time of writing, this option is obtainable in the following states:

Other Ways to Save on Auto Insurance

A policy with no down payment is just one among many ways to lower your car insurance cost.

Some alternatives can decrease your premium even more.

Shopping around is the optimal way to get the bargain car insurance.

This is done by requesting quotes with the limits of your choice from at least five insurers.

However, cheap coverage is not necessarily a reliable one.

That’s why checking the expert’s reviews will help you make a shortlist of the finest insurance companies in the market.

They will aid you to discover how major insurers score in customer service, financial strength, as well as how many discount and optional coverages they offer.

Which Companies Offer this Option?

Below is a list of companies which offer coverage if you pay in full or a 1st monthly payment to initiate the policy.

I have included the approximate savings if you paid your premium in full with any of the companies listed below.

Included is the customer service rating for each at the time of this writing. 

Final Thoughts

Another terrific way to save is to take full advantage of discounts.

Check which company offers the premium reduction you qualify for, and where the discount is the highest.

It’s always smart to verify the exact details with a local agent since discounts and their availability vary by state.

To get the lowest premium, it’s even worth taking proactive measures, like adding vehicle safety features, anti-theft devices, improving grades, or passing an accredited driving course.

Sources

https://www.carsdirect.com/get-affordable-car-insurance-with-no-down-payment

https://www.tdi.texas.gov/consumer/

Tony Arevalo

Tony Arevalo is the Co-founder of Carsurance.net, a thorough car insurance review site. During his years in the property and car insurance industry he has worked with hundreds of clients, and has developed in-depth knowledge of what they want and what's best for them. He also possesses professional experience in the finance sector, specifically in risk analysis and portfolio management. Outside of work, he is the father of two incredible children, Vincent and León!