How to Find No-Down-Payment Car Insurance

How to Find No-Down-Payment Car Insurance

How to Find No-Down-Payment Car Insurance
Reading Time: 6 mins

There are an estimated 35 million registered vehicles on Canadian roads. This makes Canada one of the largest auto insurance markets in the world. However, car insurance is one of the highest recurrent costs of owning a car — the bigger the car, the higher the cost. 

The good news is that you can reduce this cost by opting for no-down car insurance. Keep reading to learn more about this option, one that most car dealers try to keep from you.

What Is a No-Down-Payment Car Insurance Policy?

A no-down-payment car insurance policy means getting full coverage without having to pay money upfront. That doesn’t mean you sign some paperwork and drive off. It usually means you don’t have to pay anything other than the first month’s premium. Unfortunately, not all companies offer this option.

Others offer it, but the terms are a little confusing. You should always ask your dealer whether this option exists, but before you do, you should know that this type of arrangement usually ends up being more expensive in the long run. 

However, it may come in handy if you just bought a car and your budget has reached its limit. 

Why Do Car Insurance Companies Require Down Payments?

You can never get immediate insurance coverage without paying some money first. Do not be misled into thinking otherwise. No-deposit auto insurance only eliminates the fees usually associated with setting up coverage. 

Why do car insurance companies insist on some form of down payment? Here are three reasons:

1. Validate Payment Method

A car insurance policy is a legally binding agreement. You agree to pay a premium, and in turn, the insurer covers you for the stated risks. You opt to pay a lump sum or settle for monthly premiums spread over the policy term. Possible payment methods include the following:

  • Online checks
  • Debit and Credit cards
  • Electronic Funds Transfer
  • Personal checks and money order

In addition to vehicle registration details, you will need to provide your payment details. Insurance companies need to know that you can cover the cost of the policy, and they can’t just take your word for it. Paying the first instalment gives them a chance to verify payment details for new policyholders. In short, it helps assures them that you are a suitable candidate for coverage.

2. Reduce Risk

The insurance policy normally kicks in immediately. From that moment forward, the insurer assumes the covered risks. This means that, if you get into an accident on the same day, you qualify for compensation. A down payment exists to offset some of the risks involved in insurance. The basic principle is that not all customers will need compensation at the same time. 

Down payments and premiums obtained from other clients are pooled. Only a fraction of this money is ever needed at any given time. Paying a down payment is your contribution to this pool. It also locks you in, and you can’t cancel the policy because you are already invested. 

Is No-Deposit Car Insurance Right for You? 

No-deposit car insurance policies appeal to many people because of the small initial outlay. However, this doesn’t make such policies a cheap car insurance option, so before you commit to an auto insurance policy, ask yourself whether it is the right way to go. 

Here are a few factors you should consider:

1. What’s the Quote?

Despite the lower initial capital outlay, no-deposit car insurance can cost more. Usually, the insurance company spreads the cost of the policy over the coverage period. Additionally, they will add a few administrative costs to the total. 

So, while you don’t pay a lot at once, it might end up being more expensive. Check the quoted amount before committing. If you can afford it, always pay as much as possible upfront.

2. Do You Qualify?

You may be considering insurance with no deposit but be unaware that not everyone is eligible. Due to the higher risks associated with this arrangement, insurers need certain assurances. For one, they will need to know you can pay the monthly instalments. 

As a result, most insurance companies will need proof of a stable income. Others look at things like driving records and credit ratings.

3. What are the Terms

Amid all the excitement, you might not thoroughly review the terms of the policy. The first area you should pay close attention to is the coverage. Some no-deposit car insurers don’t cover everything. You might sign what you think is the “deal of a lifetime” only to discover it is inadequate.  

The second area you should review is the deductibles section. This is the amount of money you will have to pay out of pocket each time you file a claim. No-down-payment policies often come with higher deductibles. If deductibles are too high, this defeats the purpose of saving on the initial down-payment.

Pros and Cons of “No-Down-Payment” Car Insurance

The suitability of any car insurance policy depends on your situation. Like everything else in life, there are pros and cons. For instance, a lower deposit usually means higher premiums. Here are the pros and cons of no-down-payment car insurance that you should know about:

Pros

  • The initial cost is significantly reduced, allowing you to get coverage even if your finances are stretched.
  • As in most places, auto insurance is mandatory in Canada. No-down-payment insurance allows you to hit the road without having to wait until you have enough to pay the lump sum.
  • It allows the policyholder to plan regarding how to settle the rest of the amount in time. You will know beforehand what you owe every month.

Cons

  • This option usually ends up being more expensive than a lump sum or partial deposit payment. It merely defers payment to a future date. This may work against you if your financial situation worsens in the future.
  • Not everyone is eligible for a no-down-payment car insurance policy. Insurance companies look at things like credit rating and driving records, so there are no guarantees you will be offered this arrangement.

What Are the Average Down Payment Costs?

The Insurance Information Institute explains that age, car model, and location are considered. For instance, provinces like British Colombia and Ontario have the highest costs of insurance. 

According to the Insurance Bureau of Canada, the average annual cost of auto insurance in British Colombia is $1,808. The exact cost is much lower in other provinces, like Quebec. Quick division by twelve reveals that motorists pay an average monthly premium of $150.66. In most cases, the down-payment is usually worth the same as a month’s premium. The down-payment reduces your balance for the year.

Returning to our example, if you pay $150.67 during signup, your balance is $1,657.33. This balance is spread across the rest of the year. That means you will be paying $138 in monthly premiums. This is cheaper than paying $150 a month. That amount is reduced further if you pay a lump sum during signup.

However, this example is based on averages for British Columbia. Insurance costs are significantly less in other provinces. For instance, the cost is almost half in Quebec. There are also variations depending on city, age, credit rating and the type of car.

How to Find No-Down-Payment Car Insurance in Canada?

The figures discussed above are averages. They only provide a guide. The only way to get accurate figures is to request a quote from different insurers. Only then can you compare them against one another and pick the best.

Here are a few places to start your search.

1. Comparison Website

Thanks to technology, you can do all your insurance shopping at home. All you have to do is enter the details, such as the car’s model, mileage, and year of purchase. The websites then bring up quotes from some of Canada’s top insurance providers. Some sites even get you in touch with an insurance advisor to help you decide on a policy. However, you may need to sign up to enjoy some of these services.

2. Go Directly to the Source

You can skip all the online searches and go directly to the source. Approach any insurance company or agent in your area. You can visit their offices physically, call, or send an email. Most insurance companies will get back to you within the day. Even if you use a website for comparison, it helps to contact the insurer directly. You may learn about attractive packages you would not otherwise have known about.

Conclusion and Recommendation

There is a lot of confusion about no-down-payment car insurance. We hope this article sets the record straight about what it means. This arrangement is great if you are cash strapped because it allows you to get coverage at the lowest initial cost. However, it usually ends up being expensive, so please don’t rush to commit, thinking it is the cheapest car insurance. 

We would only recommend it as an option if you need coverage urgently and don’t have the cash. However, if your interest is cost control, there are better ways to reduce your insurance bill. Take full advantage of any offer discounts. Improving your credit score and maintaining an impeccable driving record also helps.

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