ARE CAR FINANCE AND INSURANCE DEALS GOOD VALUE?
Car Finance with Insurance vs Car Finance without Insurance
My monthly budget is
Rates from 8.9% APR. Representative APR 19.9%
Can I get Car Finance with Free Insurance?
Cars finance with free insurance deals sound like a dream come true, right?
Unfortunately, once you look closer, it becomes apparent that there’s no such thing as a free lunch!
Arguably for most drivers, a far more sensible option is to take out car finance and insurance separately.
Is New Car Finance with Insurance Good Value for Young Drivers?
The main attraction of car finance with insurance deals is that you don’t have to worry about paying for insurance – which can be incredibly expensive for a young driver. However, saying that these deals offer free car insurance is slightly misleading.
While it might look like a brand new car on finance with free insurance, you will be paying that price somewhere – usually on the car!
For example
18-year-old Tommy decides to buy a new car with so-called free insurance.
He sees the following deal for a Peugeot 108 :
Tommy has £900 to put down as a deposit. After this, the total price is £400 per month. It sounds like a lot, but this covers his insurance, warranty, tax, and service for three years.
(It’s worth noting that many deals only cover insurance for one year!)
Is this worth the price?
Taking out a PCP on the same car would cost Tommy around £185 per month. Tommy then does his homework and gets a quote for the cheapest insurance. By adding a parent as a named driver, he can reach a premium of £1300 per year – or £108 per month.
That brings his total for a brand-new car up to £293 per month.
For the ‘new car finance with free insurance’ deal to make sense over a year, you would need to spend around £1284 on servicing and road tax; that won’t happen – the road tax on his 108 is free, and he doesn’t need to MOT the car for three years as it’s new.
The average service will set you back £100-150 per year – leaving Tommy with savings of over £1000.
When can a free car insurance deal work out favourably for a young driver?
If you are determined to get a new car, money isn’t an issue, and you want to get on the road as soon as possible, these deals might be worthwhile.
However, be aware that you are paying for convenience. If you were to search elsewhere, you could save money.
Car finance, including insurance, might also be helpful to young drivers who are only offered black box insurance deals, and their premiums are sky-high as-is. However, remember that you must still be vetted when applying for a car with an insurance deal like Just Add Fuel.
It’s not merely paying and getting the insurance – you could not be accepted or even charged a higher premium.
What age can I qualify for a car with insurance included deal?
Under 21! You are unlikely to meet the credit requirements needed for PCP finance. Someone with good credit, such as a parent, would probably need to cosign the contract and be responsible for making repayments.
At 21 plus, your chances of getting accepted for one of these cars with a free insurance deal improve; a good credit score will be crucial.
As well as being vetted for the finance, you must apply for the included insurance.
Unfortunately, each insurance company has different eligibility conditions, and with these deals, you’re stuck with one company – you can’t pick your own.
Also, insurance acceptance depends entirely on your postcode, job and driving record. You might end up being declined on the insurance part of the deal and need to go elsewhere – agreeing rapidly lose its appeal!
Arguably, it’s much easier to finance a nearly new car for the best value, saving yourself thousands of pounds on the list price. You are not tied to a specific provider and can source the cheapest car insurance for young drivers with no black box.
When you finance independently, you’ll likely want to choose between an HP and PCP deal.
Do I need to have a black box fitted to the car?
If you decide to go for a new car with a free insurance deal, then you will almost certainly have to have a black box fitted to the vehicle.
A black box is a form of telematics that tracks how safely you drive. It has positives and can encourage young drivers to make smarter driving decisions. It also makes your insurance much cheaper.
Many freedom-hungry young drivers don’t want a black box on their cars. If searching for your own insurance deals, you’ll be able to find providers that don’t require a black box. The premium will be higher, but you at least have the option.
What type of finance is used for cars with free insurance deals?
When you think about a new car finance and insurance deal for first-time drivers, you might think these free insurance deals differ from the usual car finance options. The truth is that these new cars with free insurance are just PCP deals!
With PCP, there’s a deposit, monthly payments, and an agreed value for the car. You hand it back after your contract is up unless you want to pay a couple of thousand pounds to keep it – which is rarely worth it.
With so-called free insurance, the ‘cheaper monthly payment’ aspect of the PCP disappears, as your monthly fee will be pretty high.
You could look for the best PCP deals with no deposit and source insurance separately.
Pro's
- Cheaper monthly payments compared to a traditional hire purchase
- You can hand the car back and take out a newer one
Con's
- The balloon payment is enormous: not a good choice if you want to own the car
- Your payments don’t grant you equity in the car
Can I buy a used car on finance with insurance included?
Yes – companies like Stoneacre offer an ‘All-Inclusive’ service, a pay-monthly motoring package on both new and used cars, and a wide range of cars for first-time drivers with free insurance. It includes one year of insurance, three years of servicing, three years of road tax, three years of’ guarantee’, and three years of roadside cover.
With a used car, your finance payments will be lower, and servicing will become more important and possibly more expensive. However, for most, this deal probably isn’t worth it.
It’s worth noting that insurance only lasts one year, so you will have to add a monthly insurance bill to your remaining contract!
Arguably, a far more sensible option is to take out a traditional Hire Purchase on a high-quality used car and source your own insurance. If you go with an all-inclusive deal, you’re paying considerably more for servicing, road tax, and breakdown cover (after the first year).
With the average servicing costing around £100, road tax costing as little as £0 on many cars, and breakdown cover from just a couple of quid, the cost difference does not favour the young driver.
Is road tax usually included?
Road tax is often cited as being included. However, if not free, the road tax is exceptionally cheap for many newer cars!
For the inexperienced Young Driver, it’s worth remembering that road tax is not as stressful as finding an insurance deal. You must log in online, insert your registration number, and pay. You can also finance road tax over 12 months.
Free road tax is not a particularly enticing part of the deal.
Do you get MOT and servicing included?
Free MOT and services are often advertised on these free car insurance finance deals. Again, this isn’t as helpful as it looks.
If you’re taking out a deal on a new car, you don’t need to take it for an MOT test for three years anyway! As most sales fall around this time frame, this is a bit misleading – the MOT test is only free because you don’t need to take one.
Servicing is a little different. Young Car Driver recommends that you service your car precisely as your manual states, usually about once a year (or every 12,000 miles – whichever comes first).
The average cost of this service is around £100. If you’re a young driver financing a new car, it’s doubtful you will need serious work during this time. As such, the free insurance car deal will only save you a few hundred over the contract term.
What are the most popular deals for new cars with free insurance?
You can get a new car and insurance deal directly from some car manufacturers or a credit and insurance broker. Here’s an example of both:
Peugeot Just Add Fuel:
This deal comes with three years of insurance, car tax, warranty, roadside assistance, and routine servicing.
Example:
Imagine you’re looking for cars with free insurance for 18-year-olds. They put down a £1000 deposit and ticket the lowest annual mileage option – 6667. The cheapest possible deal on a Peugeot car is £397.56pm. It’s worth noting that this will depend based on your postcode.
Peugeot’s scheme requires drivers aged between 18-20 or who don’t have two years of no-claims bonuses to use black box telematics.
Marmalade ‘Add Fuel and Go’
This offer doesn’t come straight from a manufacturer but still features new cars with insurance for first-time drivers.
Most cars come with 1-year free insurance. However, you must insure the car separately for the rest of your contract. You’ll have to contact Marmalade to get a direct quote.
It’s worth noting that you might not even get accepted for Marmalade insurance. If you do, it will come with black box telematics.
You can usually save money by finding a cheap insurance deal. The ‘free insurance’ is just added to your monthly payments!
Pros and Cons of cars with free insurance deals
Pros:
It’s convenient, as it’s a direct payment to cover all your driving needs (except fuel).
Usually comes with a brand-new car, so you have the latest safety tech and gadgets.
It can be worth it for those already facing exorbitant insurance fees.
Cons:
Considerably more expensive than sourcing insurance separately.
Insurance deals are often only offered for part of the contract.
Usually comes with black-box telematic insurance.
FAQs for buying a car on finance with insurance
At what age can I qualify for a car finance with insurance deal?
Finding proof of income can be tricky, depending on your circumstances. In most instances, you need your payslips and bank statements. Still, suppose you're self-employed, for example. In that case, it can be more difficult, as you may have to juggle statements from personal and business bank accounts.
The exact documentation you'll need depends on your lender and can vary. For example, suppose you have a low credit score. In that case, you might need more information on proof of income to ensure you can make monthly repayments. If you have had previous driving convictions or bans, you can still get car finance: you might have to reach out to more lenders.
Remember: no car finance provider will ever guarantee the offer of a car loan. However, they want your business and will work hard to try and get you signed up!
What is the type of car finance used when buying a car with free insurance included?
Car finance deals with free insurance are usually PCP deals. You pay a monthly fee to drive the car over a certain amount of time - generally around 3-4 years.
You can opt to pay a 'balloon payment' to own the car outright or simply hand it back at the end of your contract. When it comes to car finance deals with insurance, make sure to read the fine print carefully. Many deals only give you free insurance for a certain amount of time.
Also, sometimes it's cheaper to source your own insurance! It's not really 'free' - it's just added to your payment for convenience.
Do I need black box insurance for a car finance with insurance deal as a young driver?
When it comes to car finance deals with insurance for young drivers, you’ll often find that you’ll need a black box installed in your car. This type of insurance keeps your premiums as low as possible, as the insurance company can make sure you’re driving safely!
If you want complete freedom as a young driver, you can opt to source your car finance deal and insurance separately. Just be warned that insurance premiums can be excessive for young drivers without a black box.
What are the pros and cons of buying a new car with free insurance included?
The pros of buying a new car with insurance are that most of your motoring expenses are in one payment. Also, you can sometimes get a cheaper insurance deal than if you sourced it separately - depending on your age and circumstances.
The cons are that it can often be cheaper to source your car insurance and car finance deal separately. However, it can go either way - so do your homework and check out what insurance and car finance would be separate.
After you’ve got your figures, compare it to the car finance deals that come with insurance and go for the best bang for your buck. Another potential downside is that a car finance deal with insurance might require your car has a telematics black box. The insurer will monitor your driving behaviour and could penalise you for careless driving.