Not everyone is flush enough to afford to pay a full year’s worth of car insurance in one go, especially if you’re a higher-risk driver facing premiums of several thousand pounds. If this sounds all too familiar, the good news is that most insurers let you spread the cost in several instalments over the year. But you’ll need to pay a certain amount upfront – often known as the deposit. Here’s what you need to know about low deposit car insurance.
Low deposit car insurance refers to any insurance policy that requires a small initial payment, as opposed to paying the total cost of your annual premium upfront.
When you take out car insurance, you’re generally given the choice of monthly premium payments or a single annual premium payment. If you choose to make monthly payments, you’ll still need to pay your first premium upfront. In some cases, this may be higher than the other monthly payments. For example, you may need to pay 30% of the total annual insurance cost at the outset, with the remaining 70% spread evenly across the other 11 months of the year.
No. Sorry to be the bearer of bad news. But while you may see some providers marketing their products as no deposit car insurance, in reality, you’ll need to pay a certain amount upfront. This will cover at least a month’s worth of insurance, and possibly a bit more.
So, if you need to take out car insurance, you’ll need to be able to afford to pay at least a small deposit before your policy starts.
Typically, yes. Monthly payments are designed to help you spread the cost of insurance. But, regardless of whether you pay annually or monthly, your car insurance policy will apply for a full year. When you pay annually, the car insurer receives the full premium upfront, as a lump sum. This is obviously better for it financially than receiving your payment gradually over the year, so most charge a form of interest on your policy if you pay monthly. This means that 12 monthly payments will often end up costing more overall than a single, upfront, annual payment.
A handful of insurers offer interest-free monthly payments, meaning you won’t pay any more than you would if you paid the full premium upfront. But this doesn’t necessarily mean they’ll be cheaper overall than an insurer that charges interest but has lower underlying premiums.
If you opt to pay monthly, expect to pay (typically) between 10–30% of the total annual premium as a deposit. The remaining 70–90% will usually be spread evenly across the remaining 11 months of the year.
Remember to look at the overall cost of a year’s insurance rather than focusing too much on the deposit amount. A lower deposit may seem like a good idea if money’s tight right now. But paying less upfront could mean paying more interest on the remaining 11 months of premiums, so the cost could work out higher in total.
No. It’s not like deposits on, say, a hire car or a rental flat, where you get the deposit back unless anything’s been lost or damaged. With car insurance, the “deposit” is effectively an upfront payment of part of your premiums. So you won’t get anything back when the policy ends.
Regardless of how you pay for car insurance, securing the cheapest policy always requires shopping around. If you’re a high-risk driver, unfortunately, no policy will be “cheap”, no matter how you pay. But whatever your risk level, some policies will always be cheaper than others. The cheapest insurer for one person may not be the cheapest for another. So the key thing is to compare quotes (a price comparison site is a good place to start). If possible, opt for the policy that offers the cover you need at the lowest overall price.
If paying the lowest possible upfront deposit is a top priority, perhaps because cash flow is an issue right now but you need insurance straight away, there are a few insurers that let you pay for your policy in 12 equal monthly payments, but they’re not that common. And, in any case, there’s no guarantee that 1 month’s worth of premium from a more expensive provider will work out cheaper than, say, a 20% upfront payment from a provider that is cheaper overall for your circumstances.
If you’re a driver in their 30s, 40s or 50s that lives in a rural location and has a clean driving record, you may be wondering what all the fuss is about. That’s because you almost certainly fall within the “low risk” driving camp and pay relatively little for your annual car insurance. And, in fact, as of August 2021, the average car insurance premium stood at £430 – a 5-year low according to the Association of British Insurers.
But not everyone is so fortunate with their car insurance premiums. If you’re considered a high-risk driver – perhaps because you have points on your licence or are a young driver that’s only just passed your test – you could face annual premiums of several thousand pounds. And that makes paying the full annual amount upfront, or even a chunky percentage of it, much less palatable (or even possible).
If you want to drive a car in the UK, you legally need at least third-party insurance. The ability to pay a small upfront deposit and spread remaining premiums across the rest of the year makes owning and driving a car viable for drivers that can’t afford to pay in full in one go.
The vast majority of people should have the option of paying for their car insurance premiums monthly (AKA low deposit car insurance). However, when you apply to pay for car insurance in monthly instalments, the insurer will run a hard credit check against your name. If you have a poor credit score, you may find fewer insurers are willing to let you pay monthly. Those that do may charge more for cover.
Make sure you compare quotes and narrow down your shortlist before you get to this stage of the process. Every time you apply for credit, it will show up on your credit report. Running lots of credit applications in quick succession can imply you’ve been rejected several times (or are desperate for credit). This may count against you in future credit applications (for car insurance or otherwise).
Most insurers will give you the option of monthly or annual premiums, which means you can avoid paying the full amount upfront. You can compare a range of car insurance quotes from leading insurers now by clicking the green button below.
However you pay for your car insurance, the cost will be largely dictated by your personal circumstances. This includes things like your age, driving history and where you live.
But how you choose to pay can also play a part. All else being equal, paying the full annual amount upfront is likely to be the cheapest option. Insurers often charge interest on monthly premiums. This means you’ll end up paying more over the course of a year. While paying monthly will make the initial cost of car insurance cheaper, you likely won’t save money by opting for a low deposit, month-by-month policy.
However, if paying monthly is your only option, you may find insurers that charge a higher upfront deposit (for example, 30% rather than 10%) work out cheaper overall than those that require a lower initial payment. That’s because the outstanding premium you need to pay interest on will be lower.
It’s always worth comparing multiple policies and insurance providers so you can find the policy that best suits your financial situation.
To give you an idea of likely deposit levels and how paying monthly compares with paying annually, we used a price comparison site to run some car insurance quotes for a 40-year-old Peugeot 208 driver based in Bristol.
The table below shows the cheapest 3 policies overall for paying monthly, including the initial deposit amount, plus the cost for the same policies if our driver paid annually.
In all 3 cases, paying monthly would work out substantially more expensive than paying annually. But this example also shows the potential benefit of opting for a higher upfront deposit if you pay monthly.
While our driver’s cheapest quote also had the smallest deposit, their second quote had a higher upfront deposit than the deposit for the third, and overall more expensive, quote.
| Policy | Annual cost |
|---|---|
| 1 | £533.76 |
| 2 | £679.30 |
| 3 | £694.40 |
| Policy | Initial deposit | Remaining premium | Total payment |
|---|---|---|---|
| 1 | £80.06 | £510.40* | £590.46 |
| 2 | £135.86 | £642.10** | £777.96 |
| 3 | £104.16 | £701.46*** | £805.62 |
Source: Quotezone. Correct as of March 2021. *Spread across 11 payments. **Spread across 10 payments. ***Spread across 9 payments
The cost of low deposit car insurance is likely to be affected by the same factors that affect any car insurance policy. Factors that can have the biggest impact include:
If you can afford to pay your annual premium in a single hit, you’ll likely pay less overall. If your premiums are driven up by the fact you’re a higher-risk driver, it’s worth thinking about:
You can’t change your age or, in most cases, where you live. But you can keep costs as low as possible, no matter how you pay, with these tried and tested tactics.
There’s no way around it: Car insurance is a legal essential if you want to drive on UK roads. Paying your full car insurance premium upfront is almost always the cheapest option. But if this isn’t practical, perhaps because you’re a high-risk driver with high annual premiums, low deposit car insurance can help you manage the costs. The same basic money-saving rules apply as for any car insurance purchase. Compare quotes every time you renew, and use our money saving tactics to keep costs as low as possible.
| Response | 55+ | 45-54 | 35-44 | 25-34 | 16-24 |
|---|---|---|---|---|---|
| Yes | 79.5% | 76.02% | 69.49% | 71.43% | 55.34% |
| No | 20.5% | 23.98% | 30.51% | 28.57% | 44.66% |
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