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No down payment auto insurance

Fact-checked with HomeInsurance.com

Drivers seeking a good deal on auto insurance like the idea of avoiding a down payment when obtaining coverage as a way to lower costs. But are things really that simple? Read on to discover the pros and cons of no down payment auto insurance – and whether or not it’s something you should consider.

What is no down payment auto insurance?

An expensive option, no down payment auto insurance refers to policies requiring only the first month’s premium to initiate coverage. While policyholders who choose no down payment auto insurance typically do so as a way to pay a smaller premium, the economics of the policy amounts to an overall higher cost. This is because you will pay more in premiums in the long term than you would if you simply paid a down payment up front.

Insurance policies typically require either monthly, quarterly, semi-annual or annual premium payments. While the premiums that cover shorter time periods involve smaller dollar amounts, premiums that cover longer durations and involve higher dollar amounts provide more cost savings. 

Who can get no down payment auto insurance?

The availability of no down payment auto insurance depends on a number of factors, including whether the applicable state allows the option. Only seven states allow no down payment auto insurance. Other states only allow low down payment insurance options.

These states allow no down payment options:  

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

Importantly, most insurers provide a variety of payment plans for policyholders. Even in cases where companies advertise only payment plans based on longer durations, insurers may still accommodate the monthly option and apply low down payments to premiums.

Still, insurers assume risk when the policy initiates. Because risk increases with no down payment policies, insurers consider a number of factors in the overall policy equation. For instance, newer and more expensive vehicles represent an increased risk for insurers. As such, owners of these cars often find difficulty obtaining no down payment auto insurance. 

In the same way, drivers with a poor credit history or those required to notate high-risk status through filing an SR-22, likewise miss out on options for cheap down payments on auto insurance. On the other hand, older cars with lower valuations represent less risk to insurers and open the possibility of obtaining no down payment coverage. 

Why get no down payment auto insurance?

Insurers use down payments from policyholders toward onboarding costs. With no down payment policies, the onus of covering these costs falls more heavily on the insurer and increases the company risk. 

From an insurer’s point of view, potential policyholders who seek to avoid a down payment prompt cautionary warnings. Insurers enter a bad deal and end up possibly losing money when they sell no down payment policies to buyers seeking instant insurance only to avoid registration penalties or to satisfy requirements of the car dealership. When these policyholders perceive the insurance as no longer needed and cancel the policy, insurers lose money. 

While no down payment auto insurance comes with an overall higher price tag than policies paid in lump-sum amounts, monthly plans work best both financially and situationally for some drivers. 

Considering the cost of auto insurance averages more than $1,500 per year, paying a lump-sum amount brings with it multiple budget implications. Drivers without much savings simply find monthly payments more affordable than paying premiums that cover longer durations. 

Even for drivers with the means to pay larger amounts to cover longer periods, the monthly option still makes sense for drivers who want to deploy their cash in other ways. Establishing a monthly budget for car insurance premiums means freeing up savings for investment or other purposes. 

Of course, drivers who choose monthly premiums pay for the privilege as annual costs of coverage results in a higher overall price tag. 

Pros and cons of now down payment auto insurance

ProCon
AffordabilityHigher overall cost
Flexibility

How to get no down payment auto insurance

Whether shopping for no down payment auto insurance or simply shopping for the best deal with a lump-sum, the same basic guidelines apply. Considering such things as the value of the vehicle, use of the vehicle and application of the insurance contribute to determining policy needs. Specifically, consider these elements while shopping for cheap auto insurance coverage.

  • Consider coverage limits. Although each state adopts its own set of rules around coverage requirements, most require minimums around liability that cover bodily injury and property damage. While policyholders save money by buying the least amount of coverage required, inadequate coverage in cases of excessive damage creates a vulnerability.
  • Increase the deductible. Insurers decrease their risk when policyholders agree to higher out-of-pocket costs — the deductible — in the wake of an accident. A policyholder who carries a $200 deductible, for instance, carries a much higher premium than a policyholder carrying a $500 or $1,000 deductible. 
  • Bundle insurance needs. Insurers offer discounts for individuals holding multiple policies with their company. Whether homeowners insurance or another vehicle, using the same company for multiple insurance needs often provides an easy savings route. 
  • Determine available discounts. Many insurers offer discounts to individuals who own vehicles with certain features or who possess personal characteristics that represent a reduced risk. Antitheft devices within the car, for example, reduces risk and lowers premiums. The same holds true for drivers with no recorded accidents for three or more years. 

Companies that carry no down payment auto insurance

While no down payment auto insurance technically applies in only a few states, a number of companies offer cheap auto insurance available through monthly premiums. Among the nation’s largest insurance companies, these include: 

Pricing

The premiums policyholders pay on car insurance reflect a multitude of factors. As detailed in Coverage.com’s Auto Insurance Guide, these include:

  • Policyholder’s age
  • Vehicle’s age
  • Policyholder’s city and state
  • Policyholder’s claims history
  • Policyholder’s credit score
  • Policyholder’s gender
  • Policyholder’s driving frequency and distance
  • Policyholder’s marital status
  • Vehicle safety features
  • Vehicle make and model

The takeaway

  • True no down payment auto insurance applies in only seven states. In other states, insurers offer low down payment auto insurance.
  • Policyholders who pay auto insurance on a monthly basis pay less out-of-pocket up front, but pay more for the insurance over the long run.
  • Individuals find the best deals for minimum down payment auto insurance by shopping for quotes from a number of insurers and also by determining the amount of coverage needed, by agreeing to a higher deductible and by asking for applicable discounts.

While finding auto insurance with a minimal down payment requirement appeals to frugality, cost savings mean nothing if the policy provides insufficient coverage in the event of claim. By establishing base criteria and then shopping around for the best price and terms, policyholders keep costs low while also paving the way for a smooth ride ahead.

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