How much does it cost to insure a vehicle? What kind of coverage should I get? Is my current insurance company giving me good rates? These questions are important to ask before buying a new car or truck.
You don’t necessarily need to pay the full retail price to purchase a vehicle. There are several ways to finance a vehicle without paying the sticker price. Here are five things to consider before purchasing a vehicle.
1. Car Insurance
Many people don’t know that they can finance their vehicles through auto insurance companies. This type of financing is called “cash for clunkers.” You must have at least one form of approved credit to apply for this type of loan. It typically takes between three and four years to lower your insurance premiums after applying for the policy.
2. Down Payment
To qualify for a federal down payment assistance program, you will need to make an upfront down payment on a vehicle. Some programs may require a minimum amount depending on your income level and the financed vehicle. Your lender will explain all of the options you have when determining how much money you need to put towards the vehicle.
The more money you put down now, the lower your monthly payments will be once you take out a loan. For example, if you put up 15% as a down payment on a $12,000 vehicle, your monthly payments would be about $190 per month instead of the $295-$320 you might see with a 20% down payment.
3. Lease vs. Purchase
Most people choose to buy vehicles because it offers them flexibility. A lease allows you to drive off the lot with no obligations. However, there are drawbacks to leasing. A lease requires you to pay a set amount each month (called the “lease fee), including tax, license, mileage, and maintenance fees. Also, most leases only allow you to drive the vehicle for a certain period (typically 3-6 months). The lease length determines what portion of the purchase price you will pay toward the vehicle. After the length of the lease expires, you’re responsible for repaying the remaining balance.
4. Collision Coverage & Deductible
If you plan to use your vehicle for recreational purposes such as camping, driving to work, going to school, etc., collision coverage is necessary. Coverage pays for damages caused by accidents while not including vandalism or theft.
At a bare minimum, collision coverage covers damage from collisions that occur due to someone else’s negligence or fault. When you apply for a collision deductible, you can usually decide on a dollar amount that you’d like to cover yourself. You’ll receive either full coverage or minimal liability coverage most of the time.
The advantage of having full coverage is that it protects your assets against any losses that result from property damage. The disadvantage to using a low deductible is increasing your future costs if you file a claim.
5. Trade-in Value
Before purchasing a new vehicle, check trade-in values online. Many dealerships offer a discount for older model vehicles since demand is higher than supply. Keep in mind that the value of your trade-in is directly linked to its condition and old it is. If you sell the same vehicle for a larger sum, you’ll recoup more cash.
Vehicle buying isn’t as easy as it seems, but learning these five tips will help ensure a successful purchase. With these tips, you’ll have a good chance of finding a vehicle that fits your needs and budget.