Are Used Cars Cheaper to Insure?

Is It Always Cheaper To Insure a Used Car?

It is not always cheaper to insure any used car than any new car. We all know that insuring a rare classic auto or older custom sports car will probably cost more than covering this year's sedate sedan or hybrid. However, if we are going to compare apples to apples, then it is probably safe to say we could save some money on our premiums by purchasing an older car.

Insuring The Full Value of the Vehicle

To understand this, it is important to think about how insurance companies set their rates. Of course, they will base the premium on the value of the vehicle they have to insure. So if you can buy a 5 year old model for $6,000 vs. today's model for $16,000, your premiums may be adjusted down. Of course, this will be mostly true if you require full coverage, and not just liability coverage. Liability is what covers the "other guy".

Of course, if you can pay cash for a used car, rather than take out a large loan, you have some more opportunities to save on your auto insurance premiums.

Do You Need Full Coverage?

You almost always need liability insurance to satisfy your state requirements. But you may choose to pass on full coverage. Most of the time, lenders will require full coverage so they protect the asset they are lending you money to buy. But you will not have this requirement if you have a loan. Of course, you can still choose to purchase this additional coverage, but you do not have to buy it. This means you will have to pay for damages to your own vehicle if the accident is your own fault, but you will save on your monthly insurance bill.

This may seem risky, but insurers will only "total" a vehicle up to the book value anyway. It does not matter how much it will cost to replace the car or how much of a balance you have on your loan. If your older car has a book value of $2,500, it may not be worth it to pay for full coverage. That is a personal decision, and you may want to discuss your options with an insurance professionals.

Gap Insurance

GAP insurance is a product that actually covers the difference between the book value and the loan value. These days, many borrowers are "upside down" on their loans for a variety of reasons. For one thing, the book value of any vehicle tends to decline by about 20% the minute it is driven off the lot. For another thing, many borrowers tend to roll other items in the loan, like warranties or taxes, that do not add to the car's value.

So, if you can buy a used car and pay cash, you can choose to avoid full coverage. You will also avoid paying for GAP insurance. This will save you some money.

Used Cars Are Not Always Cheaper To Insure

For one thing, insurers base premium rates upon several things. The type and age of the car matters, but so does the driver's claims history, age, and zip code. In addition, insurance companies consider the claims history of particular car models. A new car with safety features and anti-theft devices may earn such substantial discounts that it will cost less to cover than an older model.

How To Find Cheaper Cars To Insure? If you are shopping for another vehicle, you will want to compare rates in order to make sure you are getting the best deal. It really is tough to guess, but you will not have to guess with accurate price comparisons.