No deposit car insurance

The last time I checked, there were over 800 websites advertising 'no deposit car insurance' listed in Google. Not bad for a product which doesn't exist, and cannot exist! Interested? Read on……

Okay, the next few lines might be a little bit boring but they are essential.

An insurance policy is a contract, and a contract has to work both ways. There has to be an advantage to you; in that you get the insurance cover; but there also has to be an advantage to the insurance company; in that they have to get at least a deposit. Unless this happens, the insurance policy is not enforceable; any insurance company that got involved in a stunt like this would be put out of business by the Financial Services Authority in double quick time.

What does happen is that a deposit is actually paid, but it is paid by your credit card company. And, yes, you do have to repay your card company when the bill falls due.

On the face of it this is still a pretty good system for someone who is a bit short of cash and the premium just has to be paid. The payments are made monthly, each one being 1/12th of the total premium, and, yes indeed, since you pay the first one by credit card you don't need to have any money available immediately. The drawback comes in month two, when you find yourself with not only the normal monthly payment to make, but also the credit card bill for the first payment. This means that although you don't need to pay a deposit in month one, you may need to put that money away to pay off the credit card in month two.

Another drawback to paying for your insurance in this way is that almost inevitably you get charged extra for it by the insurers, which is reasonable because you are in effect taking out a loan from them in order to pay your premium. Insurance companies are like every other business, they need to keep a careful eye on cash flow, and this is not helped at all when customers pay over a year instead of in full, in advance. Clients who do not pay off their credit card company for the first instalment in full also suffer another penalty, because they will be charged interest on the card balance until it is reduced to zero; which can make buying so-called 'no deposit' car insurance an expensive proposition. Sadly, for an increasing number of motorists the huge rise in insurance premiums has made this a necessity.

You would be well advised to check the cost of paying for the policy in full, as well as the cost of buying it over a year; it may be that, if there is a substantial difference, you could find it cheaper to raise the money elsewhere. Alternatively, it is worth looking out for special offers which crop up from time to time. Every now and again some insurers reduce their additional charges for paying monthly, or even drop them completely; these offers usually last for a short time only so whether or not these are available at the time that you need to buy your policy could be a matter of luck. Car insurance is still a highly competitive industry so shopping around via a comparison site which specialises in monthly repayment policies could be well worth your while.