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Coming up with money to purchase auto insurance can be tough — especially if you’re already struggling financially. Unfortunately, you can’t go without car insurance while you save up for it. Most auto lenders and dealerships require you to show proof of insurance before you buy or lease a car. All states except New Hampshire also require drivers to carry at least a minimum amount of liability insurance.

Fortunately, no-down-payment car insurance can help you get coverage without coming up with the full policy premium. But before you start shopping around, you should know that “no-down-payment insurance” is a bit of a misnomer — all insurance carriers require you to pay something up front to start a policy.

Here’s what you need to know about no-down-payment car insurance:

What is no-down-payment car insurance?

There’s really no such thing as zero-down-payment car insurance. All legitimate insurance providers require customers to put some money down in order to activate coverage. So, a better name for this type of policy might be “low-down-payment” insurance.

No-down-payment car insurance is a type of auto insurance policy that allows you to start coverage without paying the entire premium or a large upfront deposit. Typically, the insurer requires you to pay a small amount (usually at least the first month’s payment) to start your policy. Then you’ll make monthly payments until the policy is paid in full.

Example: The national average for full-coverage auto insurance is $1,342 per year, or $111.83 per month, according to AAA’s 2021 Your Driving Costs study. So, you’d have to pay at least $111.83 when signing your policy.

This type of insurance is a great option if you’re struggling to save up for a down payment, since it allows you to get coverage without having to come up with a large sum of money. And since monthly payments are spread out over time, it can be more affordable than paying the full premium all at once.

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Is no-down-payment car insurance available in my state?

No-down-payment car insurance is only available in some states. Currently, only Arizona, California, Florida, Georgia, New York, Oklahoma, and Washington permit these types of policies.

How else can I make car insurance payments?

You have a few other options for car insurance payments if you can’t afford to pay the full premium up front:

  • Set up a payment plan with your insurer. This means you’ll divide your premium payments into smaller, more manageable amounts that you’ll pay over time. Not all insurance carriers offer payment plans on all types of policies. If they do, you may have to pay a fee for each installment payment. However, some insurers will lower or perhaps even waive the installment fees when you sign up for an electronic funds transfer (EFT).
  • Pay your premium with a credit card. Using a credit card can be an option for spreading out your payments and making them more manageable. On the other hand, using a credit card can get expensive if you don’t zero your balance each month. As of August 2022, the average credit card interest rate is 18.43%, according to the latest data from the Federal Reserve. Let’s say you charge your $1,342 annual auto insurance premium to a credit card with that rate and only make the minimum monthly payment of $34. It would take over five years and cost $705.62 in interest to pay off the balance. For this reason, you should only use a credit card if you plan to pay the balance off quickly.
  • Take out a personal loan. A personal loan is another option for spreading the cost of your insurance over an extended period. Personal loans usually offer lower interest rates than credit cards, but they may come with fees that increase the cost of borrowing. Of course, it’s best to avoid borrowing, if possible.
  • Pay in full. Most auto insurance providers offer a discount if you pay your six-month or annual premium in one lump sum. This can be a great way to save money on your policy and avoid having to make monthly payments, but of course it’s not affordable for many consumers.

What are the pros of no-down-payment car insurance?

No-down-payment (or low-down-payment) car insurance offers several advantages over other payment options:

  • Upfront affordability: No-down-payment car insurance can be a great way to get coverage without coming up with a large sum of money. This can be especially helpful if you’re struggling to save up for a down payment.
  • Low cost of financing: Often, insurance carriers that allow you to break your premium up into monthly installments charge a fee for each installment. It may be a flat fee per payment or a percentage of your unpaid premium, but the average is about $5 per payment, according to Consumer Watchdog. While this fee increases the overall cost of insuring your vehicle, it’s usually less expensive than financing with a credit card or personal loan.
  • Flexibility: No-down-payment car insurance can be a great option for people who are looking for flexibility with their payments. For example, say you sign up for an installment plan and then later decide you want to pay the balance in full. Most insurance carriers will let you pay your remaining balance in full and avoid future installment fees or prepayment penalties.

What are the cons of no-down-payment car insurance?

Even though no-down-payment car insurance has many advantages, there are some downsides to consider as well:

  • Can be expensive: No-down-payment car insurance can potentially be more expensive. Insurers may view customers shopping for cheap car insurance or those who need to break their premiums up into monthly payments as a higher risk than customers who can afford to pay a larger portion of their premium up front. Insurance carriers also recognize that you might use them for temporary insurance just to get the car or get it registered, then let your policy get canceled for nonpayment. To offset that risk, they may charge higher rates for these types of policies.
  • Monthly fees: Insurance providers also tack an installment fee or finance charge onto each monthly payment, which increases your overall costs. You may be able to lower these fees by opting to pay via EFT.
  • May not be available to everyone: Some drivers might have a hard time getting no-down-payment car insurance. For example, insurance carriers might require owners of newer and more expensive cars to come up with a larger down payment since their cars are riskier to insure. Likewise, these policies might not be available to drivers with a low credit score or those who require an SR-22, a proof-of-insurance form required by court order following a DUI conviction, reckless driving, or an accident while driving without insurance.

Is no-down-payment car insurance for me?

No-down-payment car insurance can be a great way to get coverage without coming up with a large sum of money. This can be especially helpful if you need insurance but don’t have the cash available to put a large percentage down or pay your premium in full.

However, it’s important to weigh the pros and cons of this type of policy before deciding if it’s the right choice for you. And before signing up for any car insurance policy, make sure you’re getting the best deal possible. Compare quotes from different insurers to find the policy that offers the best rate. Insurance carriers determine your rate by reviewing your driving history, ZIP code, the type of car you’re insuring, and the level of coverage you select, among other factors.

Tip: Don’t forget to ask about other discounts that may be available, such as those for bundling home and auto insurance coverage, low annual mileage, having a clean driving record, taking a defensive driving course, or having an anti-theft device on your car.

If you do choose a no-down-payment policy, remember that the less you pay up front, the higher your monthly installments will be. Make sure you can afford the monthly payments so you don’t miss a payment and lose your coverage.

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About the author
Janet Berry-Johnson
Janet Berry-Johnson

Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.

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