How many times have you sat through a television commercial advertising a new car, only to be ready to jump up and go buy it right away? You’re not alone. That reaction is exactly what those types of commercials are designed to elicit. However, bear in mind there are things you need to consider before signing a deal. One of them is the cost of car insurance.
It should be obvious that we all want affordable car insurance. But we also want to be able to afford owning that car we saw in the ad. When you look at it through the lens of total cost, that brand-new car may not look so attractive.
Total Cost of Ownership
One of the tools used by money-wise consumers is known as “total cost of ownership.” This financial tool takes into account all of the money you will spend on a car over a five-year span. It looks at your monthly loan payments, your insurance payments, and how much you’ll spend on gas, routine maintenance, and repairs. It is the total cost of ownership that lets you see that brand-new car in light of your total budget.
The principle of total cost of ownership dictates that you consider insurance rates before you purchase a new car. Why? Because insurance prices depend somewhat on the make and model of the car you drive. Just take a minute and think about the following:
- Repair and Replacement – Just as some cars are more expensive to purchase, others are more expensive to repair and replace. The general rule states that the more expensive the car is on the showroom floor, the more expensive the insurance will be.
- Theft Potential – In the eyes of thieves, there are two types of cars they love to steal. The first is an older car, like a 1990s Honda Civic, with parts that are hard to come by. The second type of car is whatever is currently hot on the retail market. If the new car you are thinking of is the same car everyone else is after, expect to pay higher insurance rates.
- Credit Score – When you buy a new car, you are instantly putting strain on your financial resources – something that will affect your credit score. But guess what? Your credit score also affects your insurance premiums. If you are already at your limit for monthly insurance payments, do not buy a more expensive car.
Adding It All Together
You can visit several different websites that provide total cost of ownership tools. The more comprehensive tools include a category breakdown allowing you to see how much you are likely to pay for car insurance. Though that number will not be accurate to the penny, it will give you a ballpark figure.
Use that ballpark figure to decide whether affordable car insurance is realistic or not. That number might also be important when it comes to monthly budget. If the combination of insurance and loan payment is too much for you to handle, think about less expensive vehicle.
Whatever you decide to do, do not purchase car insurance without comparing quotes from multiple providers. Getting the best price on affordable car insurance is not possible if you don’t know what other companies are charging.
One last thing before we wrap this up: Do not assume your current insurance company is automatically going to give you the best deal. They may, but they may not. It all depends on how they rate your new car. And don’t worry if they don’t give you as good a price as you’re expecting. You can always switch to a new provider.