No Deposit Car Insurance

‘No deposit’ car insurance is a misnomer — while you don’t pay a large upfront lump sum, you’ll still usually pay your first monthly premium before cover begins. 

The term is more of a marketing phrase used by some providers to describe their pay-monthly insurance policies. These allow you to spread the total cost of your car insurance over monthly instalments rather than paying your annual premium in one large lump sum. 

Be aware that you still have to make an initial payment — usually the first month’s premium or a percentage of the total cost — before your car insurance cover kicks in. So, while it’s called ‘no deposit', it’s not truly deposit-free, just less costly upfront than paying in full.

Here’s how the process of no deposit car insurance works:

1. You apply for a car insurance policy and request to split the cost into monthly instalments.
2. The insurer runs a hard credit check on you to determine whether you’re eligible for a payment plan.
3. If approved, you pay an upfront deposit (usually 20% of your total cost), which immediately provides you with coverage.
4. You pay the rest of the costs in monthly payments via direct debit, typically over 10 or 12 months.

No deposit car insurance is for anyone who wants to spread the cost of their insurance over monthly instalments to make it easier to afford.

Car insurance is a legal requirement — and a significant expense. On average, car insurance costs around £622. However, this can vary significantly depending on your age, job title, car, and other factors, which can increase overall costs to over £1,000.

This type of insurance can be especially useful for:

• Drivers on a tight budget: It avoids the need for a large initial payment, helping you stay insured without financial strain.
• Infrequent or seasonal drivers: If you only drive occasionally, a flexible payment plan might seem appealing — but be cautious. Cancelling a monthly policy early can lead to cancellation fees, meaning you could pay more for less coverage. In some cases, short-term car insurance may be a better fit.
• First-time drivers: New drivers, who often face high premiums, may find it easier to get on the road with a no deposit option.

No deposit insurance doesn’t eliminate the fact that you’ll still have to make an initial payment. So, is it worth it?

Benefits

• Immediate coverage without a large upfront payment: Your initial payment is much lower than if you were to pay your premium in one lump sum. So, there’s no need to save for months to get immediate cover. 
• It’s more flexible: For those with tighter budgets, the ability to spread payments evenly over the year can make coverage more affordable. 
• It can improve your credit rating: If you settle your monthly payments in full and on time, it can increase your credit score and give you better rates in the future.

Drawbacks

• It’s more expensive: Monthly car insurance premiums come with interest charges, as you’re essentially entering into a credit agreement with your insurance provider. This makes monthly policies more expensive than if you were paying annually. And if you have a poor credit rating, this can skyrocket costs even more. 

• It could potentially harm your credit score: To determine your eligibility for a payment plan, insurers will carry out a hard credit check. This shows up on your record and temporarily reduces your credit score. And if you miss monthly payments, it will negatively affect your credit rating.

Whether you decide to make monthly payments or cover the total cost in one go will depend on your personal circumstances and needs.

Paying monthly

It might be better to split payments into monthly instalments if:

• You don’t have the funds available to pay the total cost of your premium upfront.
• You want to manage your budgets more effectively.
• You’re looking to increase your credit score.

Paying annually 

If you opt to pay annually, you’ll pay your car insurance cost in one go with no interest fees, covering you for the remaining 12 months.

You might choose to pay annually if:

• You want cheaper car insurance and have the financial capability to cover the total cost upfront.
• You want the peace of mind that comes with paying in one go.
• You have a low credit score (insurers only do soft credit checks to verify personal details, which don’t show up on your record).

That said, paying annually requires a significant upfront investment, which can harm your immediate cash flow.