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

Updated November 15th, 2020

Written by
Tony Arevalo
P&C Insurance Agent

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 from multiple policies 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 full premium. Be sure to check with your car insurance provider about long term pocket cost when paying monthly.

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

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

Alternatively, you can opt to pay separately for each month, called no down payment auto insurance coverage.

A more expensive option.

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

Insurers will always request an upfront payment for the first month.

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

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

What are the Advantages of No Down Payment Car Insurance?

Flexibility

The main benefit of putting no money down when buying auto insurance is financial flexibility and various payments.

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 competitive rates for a 40-year-old driver for no-down-payment policies and paid-in-full with the same coverage levels. Progressive, Nationwide, and Allstate offer quotes less than 10% cheaper when one-time installment compared to the monthly plan. State Farm does not offer discounts for a premium for a one-time installment.

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

In the end, car insurance is not cheap, with the average cost being $1,429 annually in 2020.

Not everybody can pay such an amount in only one installment.

What are the Disadvantages of No Down Payment Policies?

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 premium payments in bolstering profits.

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

Over the long run, this leads to 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 coverage cost included $50K/$100K/$50K liability coverage limits, together with comprehensive and collision coverage, each with a $500 deductible.

I choose the basic MedPay or PIP limits.

Our vehicle was a 2018 Honda Civic, used for regular commutes daily.

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

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

With the car insurance comparison, most companies offering an auto insurance policy will lower your financial burden if you make an initial payment in full upfront. The savings depend on the company. With most insurers, it is 15 to 20% savings. With some insurers, there are virtually no savings like Nationwide. The total cost for you will depend on your circumstances, financial situation, and insurers’ installment policies.

**All policies illustrated had property damage liability, bodily injury liability, comprehensive insurance, and collision coverage. And other protection you are required to fulfill the financial responsibility laws required in your state. Some require personal injury protection (PIP), uninsured motorists coverage (UM), underinsured motorists protection (UIM), and medical payments insurance.

Availability

Not all customers can purchase a premium 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. The price is determined by the amount and types of coverage and the type of car.

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 car insurance plan:

Drivers with Bad Credit Scores

There’s no better indication to the insurance company that you cannot 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 (DUI) or getting multiple citations in a short period, may trigger authorities to request an SR-22 certificate.

A customer with such a poor driving record is a risk to insurers for a company to take without the guarantee of down payment.

Drivers with poor driving habits should make a one-time installment to insurers to mitigate long term financial expenses.

And avoid no deposit car insurance policies. 

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 a natural disaster happens.

This is especially true if the deductible for comprehensive or collision 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 auto 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 Rates

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

Some alternatives can decrease your premium even more.

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

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

However, cheap auto insurance 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 in discovering how major insurers score in customer service, financial strength, as well as how many discounts and optional coverages they offer.

Which Companies Offer This Option?

Below is a list of companies that offer policies if you pay a one-time installment 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.

Driver Discounts

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

Check which company offers the premium reduction you qualify for, and what types of discounts are the highest.

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

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

What exactly is “No-Down Payment” Car Insurance?

When you are paying your premium every month or installment plan instead of paying in full upfront.

Initially, insurers are going to request you pay the first month upfront to get the policy kick-started.

Does every insurer require a down payment?

Not every insurer will require you to put a down payment or pay the first month upfront.

Most standard vehicle insurance companies will require customers to put 8 to 33% down before their policy is active, however.

Sources

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

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

J.D. Power’s U.S. Auto Claims Satisfaction Study

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!