No deposit car insurance - what is it?

No deposit car insurance is just a search term, and nothing else. It was made popular by people who needed car insurance, but who couldn't, or didn't want to, pay for it right away.

The fact is that it isn't possible to insure a car without paying at least something in advance (for more information visit this site). This is because:

* it wouldn't be a legally binding transaction. Under UK law a contract (which is what an insurance policy is) has to have what's called a 'consideration'. In other words the insurance company has to receive some money in exchange for agreeing to settle any claims that are covered by the policy.

* it would be commercial suicide for any insurer to agree to provide cover without seeing some money first. The level of fraud would be enormous.

Who searches for it?

Statistics show that it's mainly hard up young drivers who look for it. Their policies are usually extremely expensive compared to those of older motorists, because of their relative lack of experience and subsequently high accident rate. When a yearly premium can cost more than the price of a second hand car it is not surprising that some of them find it difficult to even afford a small proportion of it.

Are low deposits common?

A few years ago deposis as low as one twelth of the total premiun were common. However there was a large drop-out rate with a high proportion of customers failing to meet all the repayments. Rules were tightened up. Younger drivers have to find at least 20% to pay upfront, and some companies refuse to offer this type of policy at all.

Can older drivers buy policies in this way?

The over fifties find it much easier to not only find cheaper premiums, but also very easy monthly terms. This is because they are far more likely to be financially secure than younger people, and have had more time to build up a good credit record.

does no deposit insurance cost more?

Yes. There are management/interest charges which are added to the premium right at the start.

Can I still buy monthly insurance with bad credit?

This will vary from one provider to another. Some take the view that a poor credit record could mean that the motorist is less careful, and therefore more likely to have an accident, so the premium may be increased. In addition, interest charges may be higher.

Some insurers will not accept bad credit customers at all unless they pay in full, or at least provide a large advance payment.

Can I stop paying after a few months?

No. You will have contracted to pay the full sum so you cannot simply walk away from it. The company would be entitled to come after you for the remaining balance, as well as court costs if necessary.

Can it be cancelled?

Every insurance policy can be cancelled. However the exact terms under which this can be done is laid down in the policy documentation. You are entitled to have this made clear to you, in plain English, before you buy a policy. Some insurers will charge a hefty cancellation fee, some won't. Make sure you read all the terms and conditions before committing yourself.
 

Peter Marsden 2010 All Rights Reserved