No Deposit Car Insurance – Hidden Fees & Activation Costs
You bought a car – congratulations. You’re now looking at dozens of car insurance sites and comparing rates to find out which one is the lowest. If you saw terms such as “no deposit car insurance” you might be misled to think you’ll pay $0 upfront – this is not true. All insurance companies require at least a few dollars to activate car insurance. GEICO and Progressive offer the lowest rates of $5-6 on average for the first installment and an additional $10 activation fee. The lowest you’ll get in states that don’t require deposits are $15-20 activation fees. This is the absolute bare-bones minimum you’ll pay. Anyone telling you otherwise is trying to one-up you. Car insurance is a legal contract you sign with the insurer and the truth is that you’ll always pay money in advance. When companies advertise no down payment, they actually mean they’ll waiver the first month’s coverage, but you will pay other small fees that the company uses as administrative fees. Paying Monthly Vs. Annually If you went for no down payment insurance this means you’re paying by the month and the first month is waivered. The insurer will initially offer you multiple options: you can pay for the year, pay for 6 months or by the month. Most people choose to pay by the month because yearly costs can amount to over $2,000 annually. If you pay upfront you will save 10-20% on average. When you pay by the month you pay more in cumulative charges but this payment option is more manageable because it’s spread out over multiple months and your car insurance is added among other utilities. Monthly payments also increase charges for auto insurers. Insurers have to process your payments 12 months a year which tasks their employees with extra work and data management. Hence they have activation fees and administrative fees. Those fees are typically low and never exceed $10-15. On your first month, the lowest installation fee (deposit) + activation fee should be $10 for the activation and $5 for the installation. This will increase the next month as the average cost for car insurance is $100-200 a month. However, it’s not guaranteed you’ll get the low installments. Auto insurers can make you pay more money upfront based on your driving record and car type. If you drive an old car you will typically pay less on your first installment. Why Auto Insurers Make You Pay Full Deposits Certain auto insurers won’t offer “waivers” on the first month and you’ll have to pay full price even if the insurer advertises a no down payment policy. This is affected by your past driving record and/or credit score. The following factors determine whether you’ll pay a full deposit on your first month: Bad credit score. If you have a poor credit score the insurer will make you pay the full deposit costs even if you drive an old car. Although a decline in credit score can happen due to reasons … Read More