Tossing around the idea of trading in your car and getting into the driver’s seat of a new ride? When it comes to purchasing a new set of wheels, financing and insurance are two major factors that weigh in on the overall cost of the vehicle you intend to get.
The monthly cost of a new car insurance premium can make or break your car dreams. Read on to learn more about the ins and outs of car insurance and click here for more on car insurance saving tips. You could try our car insurance calculator to see how much people like you pay for car insurance and ways to save.
Why does insurance matter when buying a new car?
When it comes to buying a new car, everything matters. Do your due diligence and thoroughly research your new potential vehicle. Insurance providers will use a car’s specifications, history, zip code, driving record of insured drivers, mileage, and value of the car to determine premium.
It’s good to remember that some auto insurance companies use credit-based insurance scores. Different from a FICO credit score from one of the three major credit bureaus that predicts your overall risk level-based score. A credit-based insurance score is used to predict if a consumer will potentially file insurance claims that could cost the company more money than they’d collect in premiums.
If you bought the car outright or leased it, the type of coverage will be different depending on your state laws or lenders’ policies. We’ll get into more detail about each of these factors later.
Make, model, and year
The make of a car is the company or brand that makes vehicles, for example, Ford. The model of this brand would be the vehicle product, such as Ford Fusion. To narrow down the specifics even further, you’d need to provide the insurance company the year of the car as well.
A brand new luxury two-door sports car is going to have a higher insurance premium than a used 4 door sedan with good safety ratings. The luxury car would cost more to fix or replace if it were in a collision, was stolen, or damaged. Therefore, the liability is higher for the insurance company to cover hence the higher premium at the driver’s expense.
It is worth noting, vintage or classic car insurance can be high as well. Despite its age, a classic vehicle’s value could be higher due to its rarity, make, model, year, or collector appeal. These vehicles could come with high maintenance costs and low safety ratings.
Car history
Vehicle history can be found using companies like Carfax or AutoCheck. Most dealerships will provide you with a car history report before purchasing and you can pay for a report when dealing with owner sellers.
A report provides a vehicle’s history about past ownerships, accidents, title status, mileage, fire or flood damage, and more. Having a list of services performed and maintenance details will give you a better idea of how well the vehicle was taking care of.
Some automobile lenders won’t finance the vehicle if there are any red flags, like high mileage compared to the year of the car or multiple engines and transmission replacements.
Like a car’s history, your driving history is important as well. If you’ve been in multiple accidents and have a history of tickets, insurance companies view you as a higher liability and you’ll likely have a higher premium.
Amount of coverage purchased
Coverage differs state by state when you’re putting new car insurance on a vehicle that’s financed, leased, or bought outright. Let’s take a detailed look at the different types of auto insurance coverage.
Financed vehicle
Generally, most insurance companies require comprehensive and collision when the vehicle is financed. Below we’ve broken down the details on each type of auto insurance coverage.
Comprehensive
Comprehensive insurance is a type of automobile coverage that pays for the replacement or repair of your car in the event of non-collision damage or if it’s stolen. Also known as “other than collision”, comprehensive insurance also covers fire damage, vandalism, or fallen object damage (like hail or trees).
Your auto loan lender or leasing company will likely require this type of coverage. If you own your car outright, some auto insurance companies allow you to choose this coverage as an optional coverage on your policy.
Keep in mind, you’ll have a deductible. This is a set amount you’re required to pay when you make a covered claim.
Collision Coverage
Collision coverage is when the insurance company pays for the replacement or repair of your car if it’s in an accident with another vehicle, object, or a single-car accident like a rollover.
This type of coverage comes with a deductible, which you pay for before your insurance company helps you pay for your claim. Usually, you chose the amount of coverage you’d like ranging from $0 – $1000.
The lower the deductible you choose, the higher your premium will likely be and vice versa. The value of your car can play a factor in determining the deductible. Collision coverage comes with a limit and it’s typically the cash value (minus depreciation) of your car.
So, if you get an accident with another car and your deductible is $500, you’ll pay $500 towards the repair or replacement costs. If the car is totaled, the insurance company will cut you a check for the depreciated value of the car minus the $500.
Gap
This type of car insurance coverage helps pay off your loan if your car is totaled or stolen and you owe more than the car’s value. Gap insurance pays for the amount between the depreciated value of the car and the remaining amount you owe on the loan. Many lenders require you to have gap insurance when you lease a car or until you pay off the loan.
Liability coverage
In most states, auto liability coverage is required by law. It means that if you cause a car accident, you’re liable for the accident and your liability coverage pays for the other person’s expenses. The two forms of liability coverage are bodily injury liability coverage and property damage liability coverage– most states require both.
Leasing
Leasing a car is like renting a brand new vehicle from the dealership. While it might be a better option for someone with lower credit, dealerships want their new property fully covered with the best insurance. Therefore, expect to pay premium insurance prices.
Call your auto insurance provider first
If you know the exact specifications of the vehicle or vehicle identification number (VIN) you intend to buy, give your insurance provider a call and get a quote. At this point, you can shop around for quotes or look for a better car deal that has better insurance rates.
What Can I Afford?
Forget about shiny new object syndrome, knowing when to buy a new or used car and possibly waiting could get you the best deal. If you’re not sure what payment or insurance amount you’d be able to afford – use the Aqqru app and find the budget that works best for you!
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