Low Deposit Car InsuranceTue, 11/10/2016
Low deposit car insurance is a way to spread the cost of your car insurance premium across a number of months. It appeals to motorist who would prefer not to pay out a larger lump sum for their insurance all at once.
Historically this applied to those who trigger higher insurance premium costs. This includes younger drivers, motorists with previous claims, drivers with convictions, and those who are driving expensive, sportier cars.
However, it has become much more common to pay for your car insurance in monthly instalments, in the same way that you might pay for a smartphone service plan. Nearly 50% of insurance premiums are paid in monthly instalments, with a small deposit paid at the beginning.
If your insurance premium turns out to be higher than you want to pay in a single lump sum, you will often be offered the opportunity to take up a payment plan - usually starting with a low deposit.
How Does Low Deposit Insurance Work?
A low deposit car insurance premium lets the driver insure their vehicle for the year by paying in monthly instalments after an initial deposit. This means the cost of car insurance can be spread, making payment easier to manage.
Low deposit insurance is a loan from your insurer, and therefore has interest applied. Usually interest is applied at a competitive rate (typically 8% for shorter terms, 12% on longer terms). On top of this, there is usually a £20-£30 administration fee for managing the monthly payments of the insurance.
Like any financial decision, there is a balance to be struck between long term and short term costs.
This is one of the reasons why low deposit insurance is usually only considered for policies over £300. For smaller policy balances the administration charges and interest becomes a higher proportion of the pay-out, no longer making obvious sense to the buyer or the insurer. At Be Wiser the minimum policy value for which we offer monthly payments is £150.
Low Deposit Insurance Payment Examples
The best way to illustrate the effects of interest and fees on a policy to provide some examples.
Low Deposit Plus 3 Monthly Payments.
When three monthly instalments are paid, the initial deposit is 30% of the premium plus a £20 fee. Interest is charged at 8% on the three instalments, as shown in this table of examples:
|Premium||Deposit||3 Monthly Payments Of||Total Payable|
A £500 policy split over three months would start with a deposit of £170, followed by three monthly payments of £126; a £2000 policy split over three months would start with a deposit of £620, followed by three monthly payments of £504; and so on.
Low deposit Plus 9 Monthly Payments
When nine monthly instalments are paid, the initial deposit is 20% of the premium plus a £30 fee. Interest is charged at 12% on the nine instalments, as shown in this table of examples:
|Premium||Deposit||9 Monthly Payments Of||Total Payable|
A £500 policy split over nine months would start with a deposit of £130, followed by nine monthly payments of £49.78; a £2000 policy split over nine months would start with a deposit of £430, followed by nine monthly payments of £199.11; and so on.
No Deposit Car Insurance: 10 Payment Renewal Scheme
Renewing customers may pay over 10 months with no deposit or arrangement fee. Interest is charged at 12% on the ten instalments, as shown in this table of examples:
|Premium||Deposit||10 Monthly Payments Of||Total Payable|
Is Low Deposit Insurance The Same as Pay As You Go Insurance?
In the past, “pay as you go insurance” was a name used for low deposit insurance – more or less meaning “pay monthly”.
Today “pay as you go insurance” is more usually used to describe "black box" or "telematics" insurance - where the driver has their car fitted with a box to track their driving habits. Drivers who drive less distance, less night driving and accelerate and brake well will receive a better monthly charge for their insurance.
Nowadays, then, low deposit or pay monthly car insurance is certainly not the same as pay as you go car insurance – it is simply normal car insurance, paid off as a loan.
What Happens If I Need To Cancel My Pay Monthly Insurance?
Usually, cancelling pay monthly insurance can be done fairly painlessly if you no longer need the insurance policy on your vehicle, for example because it has been sold or written off. It works very similarly whether the premium is paid in one lump sum or paid monthly.
You may be able to seek a refund of part of the cost of your policy upon cancellation. The refund, known as a “cancellation refund”, will depend on the length of policy remaining and the insurer with whom the policy is held.
Some insurers have a sliding scale for the amount that would be returned, and some use a pro-rata system to the month, while others do so to the day; most charge an admin fee too. Some insurers will only provide a cancellation refund if you are not at fault. You should consult your policy booklet to determine the refund you may be entitled to.
Remember that after a non-recoverable claim some insurers don’t offer a refund so the full premium (and so all of the outstanding instalments) may still be due. In most cases, to end a policy we would expect a “change of vehicle” to be made, whereby the motorist replaces a vehicle upon which a claim has been made with one of a similar type. If the new car is more expensive to insure than the previous one, then we will arrange for your payments to be increased for the duration of the payment period. Equally, if the new policy is cheaper, the monthly payments would be reduced.
What About Low Deposit, Pay Monthly Motorbike or Van Insurance?
The exact same principles apply to Motorbike or Van Insurance as to Car Insurance. Low deposit, monthly payment schemes are possible. Please note that we do not offer low deposit insurance where the policy cost is under £150.