Offering car insurance coverage with no down payment is one of the hottest trends in the insurance business right now. Many companies are doing it. Apparently, they have discovered there is an untapped customer base looking for this option. A customer base willing to pay extra to get it.
As a matter of clarification, car insurance policies with no down payment requirement are policies on which the customer is paying via an installment plan. By definition, this type of policy is not being purchased by someone who pays the entire bill up front.
Down Payments and Installments
Down payment and installment programs go hand-in-hand when it comes to car insurance. Depending on your coverage and the length of your policy, there are several different options for installment payments:
- Semi-annual payments (on a 12-month policy)
- Quarterly payments (on both 6 and 12-month policies)
- Monthly payments on policies of any length.
When a consumer chooses to pay for car insurance through installments, he generally has to put some money down to get the policy started. The first month’s payment is usually sufficient.
Choosing the No Down Payment Option
Insurance companies do offer an option of no down payment for those customers who need insurance now but do not have the money in the bank. This is a great option if you find yourself in an emergency situation or your budget does not allow for an immediate down payment.
Keep in mind that while some insurance companies do offer this option, that does not mean all of them do. You may have to search around to find a provider in your area willing to sell you car insurance this way. You might even be forced to purchase your insurance through a local broker rather than directly from the car insurance company itself.
No Down Payment, Higher Premiums
Now that you know a little bit about both down payments and the car insurance with no down payment option, you need to ask whether or not this type of insurance is right for you. While the opportunity to get cheap car insurance with no money down is appealing, it actually costs you more in the long run.
Here’s what you need to know about car insurance: it’s all about managed risk. Car insurance companies take the money we pay in premiums and invest it in different types of securities. That’s how they can still make a profit even though they might pay thousands of dollars in claims for people who only put a few hundred dollars into the system.
When you choose the no down payment option, your insurance company is providing coverage without getting any money in return. And although this is a short-term situation, they are risking a great deal given the fact that you could have an accident before your first monthly payment comes due.
What does all this mean? Higher premiums for you. If you select the no down payment option, you will pay higher premiums as well as additional fees and surcharges. Any benefit you may have received by getting insurance without a down payment is certainly wiped out by the added costs.
A Better Way
If you are willing to forgo convenience in favor of spending less money on car insurance, there is a better way to cover your car without going the no down payment route. If you want to enjoy maximum savings, then save enough money to pay your policy in full. You will get the best deal, the best coverage, and you still will not have to worry about down payment.