How To Shop For Car Insurance
Similar to other major purchases, all consumers want to avoid feeling buyer’s remorse when it comes to choosing their auto insurance. Since auto insurance can make up a large percentage of your total monthly cost to own or lease a vehicle, it should come as no surprise that you need to shop for your auto insurance just as you would for any other major purchase.
Shopping for auto insurance involves soliciting information from multiple sources so you can compare quotes and coverage options from several companies before making your final purchase decision.
Before you set out on your auto insurance shopping spree, it’s very important to first be prepared with a consistent set of must-have items you need included on your policy. This requires you to do some homework before approaching an agent or website to obtain your quotes so you are prepared to communicate the same consistent coverage wishes to all quote resources.
Sticking with consistent coverage options when obtaining your quotes will help you avoid a situation where you’re comparing apples to oranges. With insurance, a lower quote can often translate into less coverage or a shorter policy term (i.e. 9 months instead of 12 months) so you want to make sure you have an apples to apples comparison when you sit down to review your quotes.
If you’re having trouble deciding exactly what you need on your auto insurance policy, the following shopping avenues are not only resources from which to obtain quotes from multiple insurance companies, but they also provide licensed insurance professionals that can help you with your questions.
Visit your local insurance agent. For those of you who prefer face-to-face contact with a licensed insurance professional, visiting a few of your local insurance agents can be a very rewarding experience. Since local insurance agents are typically experts regarding insurance in your area, visiting an agent can be valuable if you require professional guidance concerning your auto insurance needs. Before making plans to visit with several agents review these distinguishing factors:
*Contract Insurance Agent. If you visit a State Farm or Allstate agent, this is an example of a contract insurance agent because they are exclusively representing the products of their parent company. This is also known as buying-direct. By visiting a State Farm agent, you will walk away with a quote for auto insurance provided by the State Farm insurance company.
*Independent Insurance Agent. If you visit an independent insurance agent, these agents typically have permission to sell auto insurance for multiple insurance companies. Therefore, you can expect to walk away with quotes from multiple insurance companies. Before making an appointment to visit an independent agent, ask them how many and which auto insurance companies they represent. This can help you in your decision to choose the independent agent that can provide the most quotes for your comparison.
Connect with your inner online shopper. If you prefer to shop for auto insurance from the comfort of your own home, there are many online resources that allow you to obtain quotes and even purchase your auto insurance through a secure online transaction. Similar to insurance agents, e-options for obtaining auto insurance quotes can either follow the buy-direct model or the independent model. For example, if you visit the website for GEICO or Esurance you will receive quotes for GEICO or Esurance products. On the other hand, if you visit an independent site like ComparisonMarket you will likely receive quotes from multiple insurance companies.If you decide to shop for your auto insurance quotes online, you can still find answers to your insurance questions because online resources have customer service numbers you can call while using their website. Some even offer an online chat with a licensed insurance professional as you are proceeding through their quote questioning screens.
The best of both worlds. One of the greatest things about shopping for auto insurance is that there are so many options for obtaining your quotes. If you’re not sure whether visiting an agent or using online tools is the best option for you, try both. Also keep in mind that there is often some cross-over between the two shopping channels because you can obtain an online quote from State Farm or Allstate, and your local independent insurance agent may have a website where you can obtain quotes from the insurance companies they represent. Trying a mixture of both shopping experiences, can help you select the option that best meets your customer service needs and will leave you with the most confidence at the end of your transaction.
Review A.M Best Rating. Once you shop for quotes it’s important to review and compare the A.M. Best Rating for each insurance company. The A.M. Best Rating provides an indication of the financial strength of the insurance company. In other words, in the event of a loss or claim, this rating is a signal as to the chances the insurance company will have the money available to cover the loss.
As an example, ratings for insurance companies whose quotes you are provided can range from A++ to C-. Therefore, if the company with the lowest rate also has a C- rating you may want to reconsider purchasing the policy due to what the A.M. Best Rating indicates about the financial stability of the company. If you received your quote online, information regarding the A.M. Best Rating is typically provided in the quote detail information, and if you receive your quote from an agent you can ask them to provide you with this information. You can also visit A.M.Best.
Shopping for auto insurance can be an intimidating and time consuming task, but equipped with the right information you will actually feel more confident and relieved at the end of your shopping experience. (How Much Car Insurance Do You Need?)
Thursday, July 9, 2009
Car Financing Pitfalls and Solutions
When an auto loan deal goes wrong, it's often because of problems that occur when the contract is prepared in the finance and insurance office (the "F&I" room). It's here that a car buyer can see much of the potential savings regarding his or her auto loan go up in smoke.To better inform car buyers, we contacted a finance expert and a former F&I officer to find out what typically goes wrong and how these problems can be avoided.Brian Reed, director of Internet lending for Capital One Auto Finance (formerly PeopleFirst), said, "Most consumers have front and center the information about the cars that they want to buy. But then they go into the finance office and all the savings could go out the door."Another auto loan expert contributing to this article worked as an F&I officer in dealerships for 15 years. He asked that his name be withheld because, as an auto wholesaler, he didn't want to alienate dealers. However, he said that most consumers "aren't aware of the importance of the F&I experience. They view it as paperwork that should be completed as quickly as possible so they can drive away in their new car."First and foremost, the deal agreed upon by the salesman needs to be put in writing in the contract, our unnamed source advised. This often involves determining monthly auto loan payments based on an interest rate. Sometimes, the interest rate a customer qualifies for is inflated so the dealership can make extra profit.This and other F&I headaches can easily be avoided by obtaining independent auto financing before going to the dealership, Reed advised. This means the consumer can proceed as a "cash buyer" and negotiate only the price of the car. Car salesmen prefer customers to be "monthly payment" buyers because, in this way, it is easier to obscure the total cost of the vehicle.Independent car financing can be obtained from a bank, credit union or on-line lender. By checking Bankrate.com, shoppers can quickly review rates at a number of different lenders. But be aware that many of their lenders will run a credit check when you apply, which will reduce your FICO score by five or six points for about six months. Besides Capital One, auto loans are also available through Up2Drive.com.If a person applies for an auto loan through Capital One (loans are also granted for motorcycles and to refinance existing auto loans), Reed said they will be contacted within 15 minutes by e-mail or telephone. If the application is approved, the borrower is given a credit limit at an established interest rate. A blank check is issued with no obligation to use it."For the majority of consumers, even if you know you have good credit, there is a little apprehension and tension around applying," Reed said. "So instead of going into a dealership and giving them your information and being sent to the coffee machine to wait for an answer, you can apply on-line, 24/7."The former F&I officer confirmed that obtaining independent car financing is beneficial to most consumers. "My buddies in the F&I would die if they heard me say this," he commented. "But with a cash buyer, there isn't much you can do to them" to make extra profit.Reed outlined the common pitfalls — and their solutions — to ensure that things go smoothly in the F&I room.
PITFALL #1: Many consumers don't know what their credit rating is when they apply for an auto loan. The strength of their credit score largely determines what kind of interest rate they will receive. Therefore, it's critical to make sure your credit report is in the best shape possible before shopping for a car.SOLUTION: Order a copy of your credit report and look for items that may stand in the way of you getting a good rate. Correct any issues or errors promptly. Are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report. The following numbers and Web site addresses will assist you in checking your credit.Equifax: 800-685-1111, www.equifax.comExperian: 888-397-3742, www.experian.comTransUnion: 800-916-8800, www.transunion.comFor more about credit scores, see "Understand Your Credit Report."PITFALL #2: Many consumers are tempted to overspend once they get to the dealership.SOLUTION: It's a good idea to set a sensible price range for the car you want to buy and stick with it. Experts suggest that monthly car payments and related expenses should not exceed about 20 percent of your monthly net income. You can even bring a printout of your budget to the dealership as a reminder. And we always recommend bringing printouts of True Market Value prices to use as a guide when negotiating.PITFALL #3: Most consumers arrive at the dealership without having researched the current interest rates being offered in the marketplace, so they have no idea if they're being offered a competitive rate.SOLUTION: Use the Internet as a research tool to compare rates. Check out Web sites like bankrate.com for national averages, and the Web site of your own financial institution.PITFALL #4: Most consumers arrive at the dealership without approved auto financing in hand. This is either because they are not aware of all the financing options available, or they assume they will qualify for a low rate at the dealer. This approach deprives the consumer of bargaining power when it comes to negotiating the lowest possible interest rate.SOLUTION: Become an "empowered buyer" by getting a no-obligation loan before visiting the dealership. Having your own loan could save you significant money. For example, a 60-month $26,000 loan at 4.49 percent can save the consumer about $1,500 over the life of the loan, compared to a loan at 6.56 percent.PITFALL #5: Many dealers offer a choice between discounted (or zero-percent) financing or a rebate — but not both. Consumers may erroneously assume that the zero-percent loan will deliver the most savings.SOLUTION: Sometimes it's better to take the cash rebate and apply it against the purchase price of the vehicle — and then use your own preapproved car loan to finance the vehicle. The savings chart below shows how a low-interest rate and a rebate can "beat" a zero-percent deal.
36-Month Car Loan Comparison
APR
0%
3.99%
Cost of car
$20,000
$20,000
Less equity in trade
$4,000
$4,000
Less rebate
$0
$2,000
Amount to finance
$16,000
$14,000
Monthly payment
$444.44
$413.27
Total cost
$16,000
$14,877.85
Savings
$0
$1,122.15
Source: Capital One Auto FinancePITFALL #6: The F&I officer may try to confuse you by "intertwining" different elements of your deal. For example, they may say "we'll give you an extra-low price on the vehicle, but this interest rate is the best we can do."SOLUTION: Consumers should "unbundle the deal" and treat the car-buying process as three separate negotiations — vehicle price, financing and trade-in value. Avoid discussions that can take you off of this track, such as "how much can you afford to spend per month?" With financing, focus on the APR, not the monthly payment.PITFALL #7: By the time they get to the finance department, many consumers are mentally worn out and don't review the contract thoroughly before signing. As a result, they may agree to buy things they didn't plan on (such as an extended warranty, rust-proofing, etc.).SOLUTION: Before you sign any papers or hand over any money, check the figures in the contract and understand all the charges. The sudden appearance of extra fees should be questioned. Sometimes, dealers add extra fees — so-called "junk fees" — to retake profit they have lost by selling cars at invoice.PITFALL #8: The consumer feels rushed, pressured and confused by the dealership's staff. In some cases these buyers have second thoughts about completing the deal — but sign the documents anyway.SOLUTION: Consumers who feel out of their comfort zone should walk away. The buyer — not the seller — should be the one in control of the process. Remember, the federal "cooling off" law does not apply to cars.If you do your homework ahead of time, and know what to expect before entering the F&I room, the paperwork process can go quickly and easily. But more importantly, you will receive a deal on your auto loan that you can feel good about for the life of the car.
When an auto loan deal goes wrong, it's often because of problems that occur when the contract is prepared in the finance and insurance office (the "F&I" room). It's here that a car buyer can see much of the potential savings regarding his or her auto loan go up in smoke.To better inform car buyers, we contacted a finance expert and a former F&I officer to find out what typically goes wrong and how these problems can be avoided.Brian Reed, director of Internet lending for Capital One Auto Finance (formerly PeopleFirst), said, "Most consumers have front and center the information about the cars that they want to buy. But then they go into the finance office and all the savings could go out the door."Another auto loan expert contributing to this article worked as an F&I officer in dealerships for 15 years. He asked that his name be withheld because, as an auto wholesaler, he didn't want to alienate dealers. However, he said that most consumers "aren't aware of the importance of the F&I experience. They view it as paperwork that should be completed as quickly as possible so they can drive away in their new car."First and foremost, the deal agreed upon by the salesman needs to be put in writing in the contract, our unnamed source advised. This often involves determining monthly auto loan payments based on an interest rate. Sometimes, the interest rate a customer qualifies for is inflated so the dealership can make extra profit.This and other F&I headaches can easily be avoided by obtaining independent auto financing before going to the dealership, Reed advised. This means the consumer can proceed as a "cash buyer" and negotiate only the price of the car. Car salesmen prefer customers to be "monthly payment" buyers because, in this way, it is easier to obscure the total cost of the vehicle.Independent car financing can be obtained from a bank, credit union or on-line lender. By checking Bankrate.com, shoppers can quickly review rates at a number of different lenders. But be aware that many of their lenders will run a credit check when you apply, which will reduce your FICO score by five or six points for about six months. Besides Capital One, auto loans are also available through Up2Drive.com.If a person applies for an auto loan through Capital One (loans are also granted for motorcycles and to refinance existing auto loans), Reed said they will be contacted within 15 minutes by e-mail or telephone. If the application is approved, the borrower is given a credit limit at an established interest rate. A blank check is issued with no obligation to use it."For the majority of consumers, even if you know you have good credit, there is a little apprehension and tension around applying," Reed said. "So instead of going into a dealership and giving them your information and being sent to the coffee machine to wait for an answer, you can apply on-line, 24/7."The former F&I officer confirmed that obtaining independent car financing is beneficial to most consumers. "My buddies in the F&I would die if they heard me say this," he commented. "But with a cash buyer, there isn't much you can do to them" to make extra profit.Reed outlined the common pitfalls — and their solutions — to ensure that things go smoothly in the F&I room.
PITFALL #1: Many consumers don't know what their credit rating is when they apply for an auto loan. The strength of their credit score largely determines what kind of interest rate they will receive. Therefore, it's critical to make sure your credit report is in the best shape possible before shopping for a car.SOLUTION: Order a copy of your credit report and look for items that may stand in the way of you getting a good rate. Correct any issues or errors promptly. Are all of your lines of credit in good standing? Are there any signs of identity theft? The credit bureaus will tell you how to correct errors when they send you the report. The following numbers and Web site addresses will assist you in checking your credit.Equifax: 800-685-1111, www.equifax.comExperian: 888-397-3742, www.experian.comTransUnion: 800-916-8800, www.transunion.comFor more about credit scores, see "Understand Your Credit Report."PITFALL #2: Many consumers are tempted to overspend once they get to the dealership.SOLUTION: It's a good idea to set a sensible price range for the car you want to buy and stick with it. Experts suggest that monthly car payments and related expenses should not exceed about 20 percent of your monthly net income. You can even bring a printout of your budget to the dealership as a reminder. And we always recommend bringing printouts of True Market Value prices to use as a guide when negotiating.PITFALL #3: Most consumers arrive at the dealership without having researched the current interest rates being offered in the marketplace, so they have no idea if they're being offered a competitive rate.SOLUTION: Use the Internet as a research tool to compare rates. Check out Web sites like bankrate.com for national averages, and the Web site of your own financial institution.PITFALL #4: Most consumers arrive at the dealership without approved auto financing in hand. This is either because they are not aware of all the financing options available, or they assume they will qualify for a low rate at the dealer. This approach deprives the consumer of bargaining power when it comes to negotiating the lowest possible interest rate.SOLUTION: Become an "empowered buyer" by getting a no-obligation loan before visiting the dealership. Having your own loan could save you significant money. For example, a 60-month $26,000 loan at 4.49 percent can save the consumer about $1,500 over the life of the loan, compared to a loan at 6.56 percent.PITFALL #5: Many dealers offer a choice between discounted (or zero-percent) financing or a rebate — but not both. Consumers may erroneously assume that the zero-percent loan will deliver the most savings.SOLUTION: Sometimes it's better to take the cash rebate and apply it against the purchase price of the vehicle — and then use your own preapproved car loan to finance the vehicle. The savings chart below shows how a low-interest rate and a rebate can "beat" a zero-percent deal.
36-Month Car Loan Comparison
APR
0%
3.99%
Cost of car
$20,000
$20,000
Less equity in trade
$4,000
$4,000
Less rebate
$0
$2,000
Amount to finance
$16,000
$14,000
Monthly payment
$444.44
$413.27
Total cost
$16,000
$14,877.85
Savings
$0
$1,122.15
Source: Capital One Auto FinancePITFALL #6: The F&I officer may try to confuse you by "intertwining" different elements of your deal. For example, they may say "we'll give you an extra-low price on the vehicle, but this interest rate is the best we can do."SOLUTION: Consumers should "unbundle the deal" and treat the car-buying process as three separate negotiations — vehicle price, financing and trade-in value. Avoid discussions that can take you off of this track, such as "how much can you afford to spend per month?" With financing, focus on the APR, not the monthly payment.PITFALL #7: By the time they get to the finance department, many consumers are mentally worn out and don't review the contract thoroughly before signing. As a result, they may agree to buy things they didn't plan on (such as an extended warranty, rust-proofing, etc.).SOLUTION: Before you sign any papers or hand over any money, check the figures in the contract and understand all the charges. The sudden appearance of extra fees should be questioned. Sometimes, dealers add extra fees — so-called "junk fees" — to retake profit they have lost by selling cars at invoice.PITFALL #8: The consumer feels rushed, pressured and confused by the dealership's staff. In some cases these buyers have second thoughts about completing the deal — but sign the documents anyway.SOLUTION: Consumers who feel out of their comfort zone should walk away. The buyer — not the seller — should be the one in control of the process. Remember, the federal "cooling off" law does not apply to cars.If you do your homework ahead of time, and know what to expect before entering the F&I room, the paperwork process can go quickly and easily. But more importantly, you will receive a deal on your auto loan that you can feel good about for the life of the car.
Car Financing Options
How to Pay for Your New Car
You're sitting in the dealership when the salesperson asks, "So, how are you going to finance your new car?"The question leaves you a little confused. What is he really asking?In the car business, the term financing is loosely used to mean that the dealership will either provide you with an auto loan to buy the car or lease the car to you. The opposite of "financing a car" would be buying it outright with one cash payment.Although you can take out a bank loan to finance your car, many people like the convenience of getting a loan through the dealership. They can walk in, choose a car, fill out a credit application and drive away in a new car. They can do this at night or on the weekends when banks and credit unions are closed.In exchange for this service, the dealer will often charge you more for your auto loan. How much more? That depends. If you have sterling credit, you might get a competitive interest rate and be eligible for special programs that lower your cost. However, if you have bad credit, or no credit, the dealer might charge a much higher interest rate for taking what is perceived as a risk on loaning you money.So, going back to the salesperson's question, "How are you going to finance your new car?" your answer could be one of three things:
"I want to buy the car."
"I want to lease the car."
"I will be paying cash for the car." Let's look in more detail at each of these financing options so you can know what to expect at the dealership:"I want to buy the car."If you decide to buy the car and you want the dealership to help you finance it, you will be asked to fill out a credit application. Based on your credit score, an auto loan will be arranged through the dealership's lending institution based on the negotiated price of the car and related expenses (sales tax, title and licensing fees). Loaning money is big business, and most auto manufacturers have their own companies to arrange car loans. For example, Nissan cars are often financed through Nissan Motor Acceptance Corp.You will probably be asked how quickly you want to pay off your new car. Most auto loans are from three to five years -- 36 to 60 monthly payments. Different lengths of time can be arranged, if desired. Obviously, the longer you take to pay off the loan, the lower the payments will be. In addition, the amount of your monthly payment will depend on the interest rate, the length of the loan and the amount of your down payment. Keep in mind that the dealership will urge you to make a large down payment.While you are paying off the balance you owe on your car, the lending institution will hold the car's title. Once all the payments are made, the car's title is sent to you and you finally own the car."I want to lease the car."If you decide to lease the car, you will also be asked to fill out a credit application. Based on your credit score, and the length of the auto lease you want, the dealer will shop for a lease for you. Using a sophisticated computer program, numerous banks will be contacted. Each bank will have different terms and conditions.You will need to decide how long you want to lease for (we strongly recommend three years). Also, you need to decide how much you want to pay upfront (we recommend you pay as little as possible to start the lease -- tell the dealer you want to pay "drive-off fees only").Most auto lease contracts allow you to drive the car 12,000 miles a year. If you typically drive more than this, ask that the car lease be written for 15,000 miles or even 18,500 miles. This will raise your monthly payments but save you money in the long run.Your contract will contain a residual price for the car you are leasing. When you have made all the lease payments, you can then buy the car for this residual price (or you can sometimes negotiate an even lower price to buy the car for). If you decide to return the car to the leasing company, they may charge you for excessive wear and tear to the vehicle. If the car is in great shape, you can get your security deposit back or use it to start the lease of another new car."I will be paying cash for the car."Paying cash for a new car makes the transaction very simple -- all you need to do is negotiate the price of the car and then write the dealer a check for this amount. This removes several variables from the negotiation process: the down payment, the interest rate and the monthly payment. Negotiating in this manner means the dealership can't disguise the true cost of the car.Wait a second, you say, who has the dough sitting around to buy a new car outright? What we're really saying is to borrow the cash from an outside source so you can be a "cash buyer" at the dealership.There are many lending institutions that make loans for new cars. Up2Drive.com will even arrange a loan over the Internet. Again, the process begins with filling out a credit application. If approved, you will be given a credit limit and issued a check (sometimes called a draft or bank draft) that can be made out to a dealership. The lending institution will hold the car's title while you make all the agreed-upon payments. When the balance is paid off, you will get the car's title.SummaryThat is an overview of the credit process you are likely to encounter at the dealership. There are several different strategies for buyers to reduce their costs at the dealership. For more information on these subjects, review the other finance and credit stories available on Edmunds.com.
How to Pay for Your New Car
You're sitting in the dealership when the salesperson asks, "So, how are you going to finance your new car?"The question leaves you a little confused. What is he really asking?In the car business, the term financing is loosely used to mean that the dealership will either provide you with an auto loan to buy the car or lease the car to you. The opposite of "financing a car" would be buying it outright with one cash payment.Although you can take out a bank loan to finance your car, many people like the convenience of getting a loan through the dealership. They can walk in, choose a car, fill out a credit application and drive away in a new car. They can do this at night or on the weekends when banks and credit unions are closed.In exchange for this service, the dealer will often charge you more for your auto loan. How much more? That depends. If you have sterling credit, you might get a competitive interest rate and be eligible for special programs that lower your cost. However, if you have bad credit, or no credit, the dealer might charge a much higher interest rate for taking what is perceived as a risk on loaning you money.So, going back to the salesperson's question, "How are you going to finance your new car?" your answer could be one of three things:
"I want to buy the car."
"I want to lease the car."
"I will be paying cash for the car." Let's look in more detail at each of these financing options so you can know what to expect at the dealership:"I want to buy the car."If you decide to buy the car and you want the dealership to help you finance it, you will be asked to fill out a credit application. Based on your credit score, an auto loan will be arranged through the dealership's lending institution based on the negotiated price of the car and related expenses (sales tax, title and licensing fees). Loaning money is big business, and most auto manufacturers have their own companies to arrange car loans. For example, Nissan cars are often financed through Nissan Motor Acceptance Corp.You will probably be asked how quickly you want to pay off your new car. Most auto loans are from three to five years -- 36 to 60 monthly payments. Different lengths of time can be arranged, if desired. Obviously, the longer you take to pay off the loan, the lower the payments will be. In addition, the amount of your monthly payment will depend on the interest rate, the length of the loan and the amount of your down payment. Keep in mind that the dealership will urge you to make a large down payment.While you are paying off the balance you owe on your car, the lending institution will hold the car's title. Once all the payments are made, the car's title is sent to you and you finally own the car."I want to lease the car."If you decide to lease the car, you will also be asked to fill out a credit application. Based on your credit score, and the length of the auto lease you want, the dealer will shop for a lease for you. Using a sophisticated computer program, numerous banks will be contacted. Each bank will have different terms and conditions.You will need to decide how long you want to lease for (we strongly recommend three years). Also, you need to decide how much you want to pay upfront (we recommend you pay as little as possible to start the lease -- tell the dealer you want to pay "drive-off fees only").Most auto lease contracts allow you to drive the car 12,000 miles a year. If you typically drive more than this, ask that the car lease be written for 15,000 miles or even 18,500 miles. This will raise your monthly payments but save you money in the long run.Your contract will contain a residual price for the car you are leasing. When you have made all the lease payments, you can then buy the car for this residual price (or you can sometimes negotiate an even lower price to buy the car for). If you decide to return the car to the leasing company, they may charge you for excessive wear and tear to the vehicle. If the car is in great shape, you can get your security deposit back or use it to start the lease of another new car."I will be paying cash for the car."Paying cash for a new car makes the transaction very simple -- all you need to do is negotiate the price of the car and then write the dealer a check for this amount. This removes several variables from the negotiation process: the down payment, the interest rate and the monthly payment. Negotiating in this manner means the dealership can't disguise the true cost of the car.Wait a second, you say, who has the dough sitting around to buy a new car outright? What we're really saying is to borrow the cash from an outside source so you can be a "cash buyer" at the dealership.There are many lending institutions that make loans for new cars. Up2Drive.com will even arrange a loan over the Internet. Again, the process begins with filling out a credit application. If approved, you will be given a credit limit and issued a check (sometimes called a draft or bank draft) that can be made out to a dealership. The lending institution will hold the car's title while you make all the agreed-upon payments. When the balance is paid off, you will get the car's title.SummaryThat is an overview of the credit process you are likely to encounter at the dealership. There are several different strategies for buyers to reduce their costs at the dealership. For more information on these subjects, review the other finance and credit stories available on Edmunds.com.
How Much Car Can You Afford?
Know Your Price Range To Avoid Getting in Over Your Head
A major factor in the U.S. auto market's recent deterioration was the number of people who took out car loans they couldn't afford. While being upside down on a car loan is nothing new, in 2008, 24.3 percent of Americans who bought a new car still had an average of $4,442 in negative equity on their trade-in, according to Edmunds data.
How did consumers get to this point? A ceaseless barrage of new car ads on TV and radio didn't help matters. That siren song of accelerating engines lured people into dealerships, where liberal lenders encouraged them to check their wallets — and their common sense — at the door.
Fortunately, our calculator, What Can I Afford?, can prevent you from getting in over your head when you buy a new car. By inputting some basic information, this simple yet powerful tool can help you arrive at an estimated price range in which you should shop.
Below is a breakdown of what goes into the calculation.
ZIP Code — Used to calculate taxes and your finance rate; both vary regionally.
Your Target Monthly Payment — What you can afford to pay each month. Unlike car ads, this number includes tax, title and registration fees that would be included as part of your total loan. Edmunds recommends that these payments do not exceed 20 percent of your monthly after-tax income. This figure doesn't include gas, insurance or maintenance, which you can factor via our True Cost to Own® (TCO) calculator.
Loan Term — We recommend sticking to the typical 60 months. A shorter loan will make your payments higher. Longer terms, while they may lower your monthly payment a bit, don't justify the jump in the cumulative interest you'll pay over time.
Market Finance Rate — The prevailing interest rate charged by lenders to consumers who fall into the second-highest credit tier (which encompasses the majority of the car-buying population). If you can get pre-approved for a better rate from a lender, input it here.
Value of My Trade-In — This assumes that, if you have a car, you are trading it in to the dealer who is selling you a new car. If you were to sell it to a private party, though, you would get more money to put toward reducing your new loan amount. Our Used Car Appraiser will tell you what your car is worth in both scenarios.
Amount Owed on My Trade-In — The amount still owed on the current financing, if any, on your trade-in. The difference between the trade-in value and the actual payoff on the trade-in is treated as a credit or debit against the new vehicle. To determine what you owe, you can call the number on your bill, or you can multiply your payment amount by the number of installments you have left before the end of your contract.
Cash Down Payment — Lenders are demanding higher down payments than before. Try to put down as much as you can afford; shoot for at least 20 percent. This reduces the size of your loan and thus your monthly payment.
Total Down Payment (with net trade-in) — This is the total of your cash down payment plus your trade-in.
Estimated Price Range — This is your "final answer," the range of sticker prices in which you should shop. Since most cars can be purchased at a discount from the MSRP, we provide a price range. Finance a car whose MSRP is at or under the top number, and you should be within the range of what you can afford each month.
We encourage you to play with the car affordability calculator by changing the inputs to see how they affect one another. This is actually a lot of fun and a great way to learn about financing. The answers you get might be humbling, and you may decide you'd be best off financially if you choose a car in a lower trim, a less expensive model or even a used car. If you follow these guidelines, you'll end up not only with a car you can afford, but also peace of mind.
Know Your Price Range To Avoid Getting in Over Your Head
A major factor in the U.S. auto market's recent deterioration was the number of people who took out car loans they couldn't afford. While being upside down on a car loan is nothing new, in 2008, 24.3 percent of Americans who bought a new car still had an average of $4,442 in negative equity on their trade-in, according to Edmunds data.
How did consumers get to this point? A ceaseless barrage of new car ads on TV and radio didn't help matters. That siren song of accelerating engines lured people into dealerships, where liberal lenders encouraged them to check their wallets — and their common sense — at the door.
Fortunately, our calculator, What Can I Afford?, can prevent you from getting in over your head when you buy a new car. By inputting some basic information, this simple yet powerful tool can help you arrive at an estimated price range in which you should shop.
Below is a breakdown of what goes into the calculation.
ZIP Code — Used to calculate taxes and your finance rate; both vary regionally.
Your Target Monthly Payment — What you can afford to pay each month. Unlike car ads, this number includes tax, title and registration fees that would be included as part of your total loan. Edmunds recommends that these payments do not exceed 20 percent of your monthly after-tax income. This figure doesn't include gas, insurance or maintenance, which you can factor via our True Cost to Own® (TCO) calculator.
Loan Term — We recommend sticking to the typical 60 months. A shorter loan will make your payments higher. Longer terms, while they may lower your monthly payment a bit, don't justify the jump in the cumulative interest you'll pay over time.
Market Finance Rate — The prevailing interest rate charged by lenders to consumers who fall into the second-highest credit tier (which encompasses the majority of the car-buying population). If you can get pre-approved for a better rate from a lender, input it here.
Value of My Trade-In — This assumes that, if you have a car, you are trading it in to the dealer who is selling you a new car. If you were to sell it to a private party, though, you would get more money to put toward reducing your new loan amount. Our Used Car Appraiser will tell you what your car is worth in both scenarios.
Amount Owed on My Trade-In — The amount still owed on the current financing, if any, on your trade-in. The difference between the trade-in value and the actual payoff on the trade-in is treated as a credit or debit against the new vehicle. To determine what you owe, you can call the number on your bill, or you can multiply your payment amount by the number of installments you have left before the end of your contract.
Cash Down Payment — Lenders are demanding higher down payments than before. Try to put down as much as you can afford; shoot for at least 20 percent. This reduces the size of your loan and thus your monthly payment.
Total Down Payment (with net trade-in) — This is the total of your cash down payment plus your trade-in.
Estimated Price Range — This is your "final answer," the range of sticker prices in which you should shop. Since most cars can be purchased at a discount from the MSRP, we provide a price range. Finance a car whose MSRP is at or under the top number, and you should be within the range of what you can afford each month.
We encourage you to play with the car affordability calculator by changing the inputs to see how they affect one another. This is actually a lot of fun and a great way to learn about financing. The answers you get might be humbling, and you may decide you'd be best off financially if you choose a car in a lower trim, a less expensive model or even a used car. If you follow these guidelines, you'll end up not only with a car you can afford, but also peace of mind.
How to Choose the Right Insurance Company
If you've read our "10 Steps to Buying Insurance" article, you should have a pretty good idea of how much car insurance to buy and how to find a low-cost policy. But how do you make sure that the company you sign on with is going to be reliable? When we say "reliable," we're talking about how the insurer treats you, the customer. Most importantly, how will the company deal with you when you file a claim?To help answer this question, we consulted two insurance experts: Dennis Howard, director of the Insurance Consumer Advocate Network (I-CAN) and a retired insurance adjuster, and Doug Heller, a consumer advocate at The Foundation for Taxpayer & Consumer Rights, a California-based consumer advocacy group. Both had several ideas for consumers determined to make sure their car insurance investment is directed toward a trustworthy company, one that will pay on time and in full.1) Visit your state's department of insurance Web site. Although you may not be familiar with it, your state, and every state, has a department of insurance. Most departments have Web sites, and many publish "consumer complaint ratios" for all of the insurance companies that sell policies in their state. This ratio tells you how many complaints a car insurance company received per 1,000 claims filed.Both experts recommended that consumers use complaint ratios to screen prospective insurers. "Just because they're a big name doesn't mean that they'll be a 'good neighbor' or that you'll be 'in their hands,'" Heller noted.If you've done your homework, you should already have a list of car insurance companies with the lowest premium quotes. Now jot down the companies with the lowest (or best) complaint ratios. Then, compare your two lists — the companies that rank best on both lists merit your strongest consideration.If you can't find complaint ratios for your state, Heller recommends examining the complaint ratios published by other states. Keep in mind that a single insurance company's practices can vary significantly from state to state — a subpar ratio in one state doesn't necessarily mean the situation is the same in your state. But watch for general trends. If an insurer is getting a lot of complaints in several other states, you probably don't want to get involved with this company. The I-CAN Web site provides links and contact information for every state's department of insurance.Also note that insurance department Web sites often provide basic rate comparison surveys. These can give you a rough idea of which insurers might interest you on a financial basis without the hassle of typing in all your personal information (as you must when you use one of the online quote sites).2) Find out which insurers body shops recommend. One of the best ways to identify reliable insurers, according to Howard, is to contact local body shops that you trust and ask for their recommendations. Body shop managers have a unique perspective to offer, since they regularly interact with insurance adjusters. They know which companies have the smoothest claim processes, which affects how quickly the work can be completed on a damaged vehicle. And they know which companies are pushing aftermarket parts, in lieu of genuine original equipment manufacturer (OEM) parts, to cut costs.3) Check the J.D. Power Ratings. J.D. Power and Associates collects data from individual policyholders nationwide and rates them according to coverage options, price, claims handling, satisfaction with company representatives and the overall experience. A quick visit to the J.D. Power Consumer Center will give you a feel for how the major carriers stack up. J.D. Power also publishes an annual survey of major auto insurers — Amica and Erie have finished at the top for the last three years. These are also companies that Howard recommends: "Erie is sold by independent agents, who are very knowledgeable about the product. I like their claims handling approach. Almost all other companies look at a claim and find a way to not pay it. Erie and Amica will look at it and try to find a way to cover it."4) Consider insurers' financial strength ratings. As a final check, you can take a look at the A.M. Best and Standard & Poor's ratings. Both companies publish financial strength ratings for all insurance companies — these "measure" an insurance company's ability to pay out a claim (they have nothing to do with the way a company treats its customers).For the general consumer, looking up these ratings is only a formality, since most of the well-known carriers are going to be a safe bet. Moreover, independent agents would be unlikely to recommend a company with dubious financial standing. Still, if you're considering a smaller, unfamiliar insurance carrier, you might consider this research time well spent. Insurance companies often provide this information on their Web sites, but if not, you can run a search at the A.M. Best and Standard & Poor's sites.The A.M. Best rating is expressed as a letter grade from A++ (the highest) to D. Some companies may be assigned ratings of E (indicating regulatory action regarding the company's solvency), F (in liquidation) and S (suspended). In any case, you should only work with companies that have at least a B+ rating.The Standard & Poor's ratings range from AAA (the highest) to CC. Additionally, some companies receive ratings of R (under regulatory supervision) and NR, which means "not rated." The letter grades might be modified by a plus or minus mark. Consider only those companies that have at least a BBB rating.5) Still confused? Consider working with an agent. It used to be that everyone purchased auto insurance from an agent, but now, car insurance companies like Esurance, Geico and others allow you to purchase insurance directly — over the phone from a customer service representative or online. Still, many of the major players have preserved their national networks of local agents — even if you use State Farm's or Allstate's Web site, you will still be assigned a local agent.There are two kinds of agents:
a) the captive agent, who represents only one insurance company (major carriers like AAA, Allstate and State Farm sell policies through captive agents).b) the independent agent, also known as a broker, who represents several insurance companies and therefore does not have a vested interest in selling you a policy from one particular company.The main advantage in having your own agent is that this person has a vested interest in keeping you happy. Accordingly, he can become familiar with your situation and guide you toward a suitable policy. Howard favors the use of agents and advised, "Don't rule out direct providers, but my personal preference is to have an agent, preferably an independent agent, write your policy for you.... An independent agent would become aware of less advantageous conditions with one company [and help you move to another]. You can change carriers without changing your agent. I encourage consumers to develop a relationship with their agent."The prospect of good working relations with an agent may help you to make a decision: When Heller purchased auto insurance for the first time, two insurers gave him similar quotes, but he went for the slightly higher one because the agent had been highly recommended by a friend. "You shouldn't go direct without always checking out other options," he said.But, he cautioned, "Never feel pressured by a broker or an agent. Take the time to talk with an agent or a broker as well as do your online research. You may not need an agent — you may find a better deal with a company that operates direct."Independent agents sometimes charge a fee for their services, but you may be able to negotiate that. You should agree upon any fee in writing before making a purchase. Look for agents who are certified by Independent Insurance Agents of America (Big "I") or Professional Insurance Agents (PIA).Of course, we know you have better things to do with your time than think about car insurance. Realistically, most people won't be able to do everything on this list before choosing an insurance carrier. But if you feel that you've been burned during the claims process in the past, consider at least one or two of these suggestions — you'll thank yourself if you're ever involved in another accident.
If you've read our "10 Steps to Buying Insurance" article, you should have a pretty good idea of how much car insurance to buy and how to find a low-cost policy. But how do you make sure that the company you sign on with is going to be reliable? When we say "reliable," we're talking about how the insurer treats you, the customer. Most importantly, how will the company deal with you when you file a claim?To help answer this question, we consulted two insurance experts: Dennis Howard, director of the Insurance Consumer Advocate Network (I-CAN) and a retired insurance adjuster, and Doug Heller, a consumer advocate at The Foundation for Taxpayer & Consumer Rights, a California-based consumer advocacy group. Both had several ideas for consumers determined to make sure their car insurance investment is directed toward a trustworthy company, one that will pay on time and in full.1) Visit your state's department of insurance Web site. Although you may not be familiar with it, your state, and every state, has a department of insurance. Most departments have Web sites, and many publish "consumer complaint ratios" for all of the insurance companies that sell policies in their state. This ratio tells you how many complaints a car insurance company received per 1,000 claims filed.Both experts recommended that consumers use complaint ratios to screen prospective insurers. "Just because they're a big name doesn't mean that they'll be a 'good neighbor' or that you'll be 'in their hands,'" Heller noted.If you've done your homework, you should already have a list of car insurance companies with the lowest premium quotes. Now jot down the companies with the lowest (or best) complaint ratios. Then, compare your two lists — the companies that rank best on both lists merit your strongest consideration.If you can't find complaint ratios for your state, Heller recommends examining the complaint ratios published by other states. Keep in mind that a single insurance company's practices can vary significantly from state to state — a subpar ratio in one state doesn't necessarily mean the situation is the same in your state. But watch for general trends. If an insurer is getting a lot of complaints in several other states, you probably don't want to get involved with this company. The I-CAN Web site provides links and contact information for every state's department of insurance.Also note that insurance department Web sites often provide basic rate comparison surveys. These can give you a rough idea of which insurers might interest you on a financial basis without the hassle of typing in all your personal information (as you must when you use one of the online quote sites).2) Find out which insurers body shops recommend. One of the best ways to identify reliable insurers, according to Howard, is to contact local body shops that you trust and ask for their recommendations. Body shop managers have a unique perspective to offer, since they regularly interact with insurance adjusters. They know which companies have the smoothest claim processes, which affects how quickly the work can be completed on a damaged vehicle. And they know which companies are pushing aftermarket parts, in lieu of genuine original equipment manufacturer (OEM) parts, to cut costs.3) Check the J.D. Power Ratings. J.D. Power and Associates collects data from individual policyholders nationwide and rates them according to coverage options, price, claims handling, satisfaction with company representatives and the overall experience. A quick visit to the J.D. Power Consumer Center will give you a feel for how the major carriers stack up. J.D. Power also publishes an annual survey of major auto insurers — Amica and Erie have finished at the top for the last three years. These are also companies that Howard recommends: "Erie is sold by independent agents, who are very knowledgeable about the product. I like their claims handling approach. Almost all other companies look at a claim and find a way to not pay it. Erie and Amica will look at it and try to find a way to cover it."4) Consider insurers' financial strength ratings. As a final check, you can take a look at the A.M. Best and Standard & Poor's ratings. Both companies publish financial strength ratings for all insurance companies — these "measure" an insurance company's ability to pay out a claim (they have nothing to do with the way a company treats its customers).For the general consumer, looking up these ratings is only a formality, since most of the well-known carriers are going to be a safe bet. Moreover, independent agents would be unlikely to recommend a company with dubious financial standing. Still, if you're considering a smaller, unfamiliar insurance carrier, you might consider this research time well spent. Insurance companies often provide this information on their Web sites, but if not, you can run a search at the A.M. Best and Standard & Poor's sites.The A.M. Best rating is expressed as a letter grade from A++ (the highest) to D. Some companies may be assigned ratings of E (indicating regulatory action regarding the company's solvency), F (in liquidation) and S (suspended). In any case, you should only work with companies that have at least a B+ rating.The Standard & Poor's ratings range from AAA (the highest) to CC. Additionally, some companies receive ratings of R (under regulatory supervision) and NR, which means "not rated." The letter grades might be modified by a plus or minus mark. Consider only those companies that have at least a BBB rating.5) Still confused? Consider working with an agent. It used to be that everyone purchased auto insurance from an agent, but now, car insurance companies like Esurance, Geico and others allow you to purchase insurance directly — over the phone from a customer service representative or online. Still, many of the major players have preserved their national networks of local agents — even if you use State Farm's or Allstate's Web site, you will still be assigned a local agent.There are two kinds of agents:
a) the captive agent, who represents only one insurance company (major carriers like AAA, Allstate and State Farm sell policies through captive agents).b) the independent agent, also known as a broker, who represents several insurance companies and therefore does not have a vested interest in selling you a policy from one particular company.The main advantage in having your own agent is that this person has a vested interest in keeping you happy. Accordingly, he can become familiar with your situation and guide you toward a suitable policy. Howard favors the use of agents and advised, "Don't rule out direct providers, but my personal preference is to have an agent, preferably an independent agent, write your policy for you.... An independent agent would become aware of less advantageous conditions with one company [and help you move to another]. You can change carriers without changing your agent. I encourage consumers to develop a relationship with their agent."The prospect of good working relations with an agent may help you to make a decision: When Heller purchased auto insurance for the first time, two insurers gave him similar quotes, but he went for the slightly higher one because the agent had been highly recommended by a friend. "You shouldn't go direct without always checking out other options," he said.But, he cautioned, "Never feel pressured by a broker or an agent. Take the time to talk with an agent or a broker as well as do your online research. You may not need an agent — you may find a better deal with a company that operates direct."Independent agents sometimes charge a fee for their services, but you may be able to negotiate that. You should agree upon any fee in writing before making a purchase. Look for agents who are certified by Independent Insurance Agents of America (Big "I") or Professional Insurance Agents (PIA).Of course, we know you have better things to do with your time than think about car insurance. Realistically, most people won't be able to do everything on this list before choosing an insurance carrier. But if you feel that you've been burned during the claims process in the past, consider at least one or two of these suggestions — you'll thank yourself if you're ever involved in another accident.
How to Save Money on Car Insurance
here is a very good chance that you are — this very moment — paying too much for your car insurance. There is an even better chance that you could get a better rate, from another insurance company, than you could from your existing insurer. So why not take an hour or so and review your policy for potential savings? Or, if you're fed up with the high insurance rates from your current insurer, shop around for a new company. The Internet has created increasing competition between car insurance companies. It is easier than ever for consumers to shop for low insurance rates, to analyze coverage and compare premiums. Still, studies have shown that people don't shop around for insurance in the same way they might shop for a new car. Also, people tend to stay with the same car insurance company for years. Why not prove these studies wrong? Put the power of the Net to work for you and save money in the process.
You can save on auto insurance in five ways:
Make sure you get all discounts you qualify for
Keep your driver's record clean and up-to-date
Adjust your coverage to assume more risk
Drive a "low profile" car equipped with certain money-saving safety features
Shop around for a good, low cost insurance providerFirst, let's look at the discounts you might qualify for. Discounts fall into a number of categories:
Low-risk occupations
Professional organizations
Combined coverage
Discounts for safety features
More risk assumed by driver
Discounts for senior citizens
Low-Risk Occupations Insurance is a numbers game. Adjustors collect information about what types of people get into accidents. Over the years they see a trend. Drivers that work as engineers tend to get into fewer accidents. Why? It would be fun to speculate about the reasons (pocket protectors — need we say more?) but the insurance companies don't really care about that. All they know is that, in fact, engineers are a low risk. Since there is less chance that they will wrap their cars around the trunk of a horse chestnut tree, they charge engineers less for insurance. Simple. But you say you are a teacher instead of an engineer? You might still be in luck. There may be discounts for teachers. You never know unless you ask — and unless you shop around. Not all insurance companies are the same. Professional Organizations and Auto Clubs Have you ever been about to pay $100 for a hotel room, only to discover that a AAA discount saves you 15 percent? Now you're paying $85 and feeling proud of yourself. It's similar in the insurance business. Affiliation with AAA — and certain other professional organizations — will lower your rates. You should check with your employer to see if there are any group insurance rates. At the same time try checking directly with the insurance company representative when you inquire about the cost of policies.Combined and Renewal Discounts A big source of savings is to insure your cars with the same company that insures your house. Make sure you ask if combined coverage is available. This will lower your payments on your car insurance and make your homeowner's policy cheaper too. It's also important to make sure you are getting a "renewal" discount that many car insurance companies offer. This is a discount given to people who have been with the same insurance company for an extended period of time. If you have carried insurance with a company for several years, and not had an accident, your insurance company likes you. Think about it. You paid them a lot of money and they didn't have to do anything except send you bills and cash your checks. True, they were ready to do something if you got in an accident. But you didn't get into an accident so they're happy and want to continue their relationship with you. A renewal discount is a good incentive to urge you to return. And it's a good reason for you to stay with them. Discounts for Auto Safety Features Auto safety features will also lower your payments. Heading the list of money saving safety features is antilock brakes. Certain states — such as Florida, New Jersey and New York — encourage drivers to buy cars with antilock brakes by requiring insurers to give discounts. Check to see if you live in such a state, or if the insurance company you are considering gives a discount for this feature. Automatic seatbelts and airbags are also frequently rewarded with insurance discounts. Assume More Risk Two powerful ways to bring your coverage down is to assume a higher risk. This is done in two ways. The most dramatic reduction can be realized by dropping your collision insurance on an older car. If the car is worth less than $2,000, you'll probably spend more insuring it than it is worth. The whole idea of driving an older car is to save money, so why not get what is coming to you?Another way to redesign your policy — and save money in the process — is to ask for a higher deductible. The deductible is the amount of money you have to pay before your insurance company begins paying the rest. In other words, you pay for the little dings and bumps and let your insurance company pay for the heavy hits. For example, a common deductible amount is $500. This means if an accident you're in causes $1,500 worth of damage, you pay $500 and the insurance company pays $1,000. You could, however, set your deductible to $1,000. This still covers you against heavy losses, but it may decrease your monthly premium by as much as 30 percent. As a final note, if you are being strangled by high insurance costs, keep this in mind when you go car shopping next time. The more expensive and higher-performance the car is, the higher the premium will be. This is particularly true of cars that are frequently stolen, or are expensive to repair. The insurance company keeps this in mind when setting its insurance rates for this vehicle. Shop for a low-profile car and get your kicks in other ways. You'll love the savings you'll see on your auto insurance.
here is a very good chance that you are — this very moment — paying too much for your car insurance. There is an even better chance that you could get a better rate, from another insurance company, than you could from your existing insurer. So why not take an hour or so and review your policy for potential savings? Or, if you're fed up with the high insurance rates from your current insurer, shop around for a new company. The Internet has created increasing competition between car insurance companies. It is easier than ever for consumers to shop for low insurance rates, to analyze coverage and compare premiums. Still, studies have shown that people don't shop around for insurance in the same way they might shop for a new car. Also, people tend to stay with the same car insurance company for years. Why not prove these studies wrong? Put the power of the Net to work for you and save money in the process.
You can save on auto insurance in five ways:
Make sure you get all discounts you qualify for
Keep your driver's record clean and up-to-date
Adjust your coverage to assume more risk
Drive a "low profile" car equipped with certain money-saving safety features
Shop around for a good, low cost insurance providerFirst, let's look at the discounts you might qualify for. Discounts fall into a number of categories:
Low-risk occupations
Professional organizations
Combined coverage
Discounts for safety features
More risk assumed by driver
Discounts for senior citizens
Low-Risk Occupations Insurance is a numbers game. Adjustors collect information about what types of people get into accidents. Over the years they see a trend. Drivers that work as engineers tend to get into fewer accidents. Why? It would be fun to speculate about the reasons (pocket protectors — need we say more?) but the insurance companies don't really care about that. All they know is that, in fact, engineers are a low risk. Since there is less chance that they will wrap their cars around the trunk of a horse chestnut tree, they charge engineers less for insurance. Simple. But you say you are a teacher instead of an engineer? You might still be in luck. There may be discounts for teachers. You never know unless you ask — and unless you shop around. Not all insurance companies are the same. Professional Organizations and Auto Clubs Have you ever been about to pay $100 for a hotel room, only to discover that a AAA discount saves you 15 percent? Now you're paying $85 and feeling proud of yourself. It's similar in the insurance business. Affiliation with AAA — and certain other professional organizations — will lower your rates. You should check with your employer to see if there are any group insurance rates. At the same time try checking directly with the insurance company representative when you inquire about the cost of policies.Combined and Renewal Discounts A big source of savings is to insure your cars with the same company that insures your house. Make sure you ask if combined coverage is available. This will lower your payments on your car insurance and make your homeowner's policy cheaper too. It's also important to make sure you are getting a "renewal" discount that many car insurance companies offer. This is a discount given to people who have been with the same insurance company for an extended period of time. If you have carried insurance with a company for several years, and not had an accident, your insurance company likes you. Think about it. You paid them a lot of money and they didn't have to do anything except send you bills and cash your checks. True, they were ready to do something if you got in an accident. But you didn't get into an accident so they're happy and want to continue their relationship with you. A renewal discount is a good incentive to urge you to return. And it's a good reason for you to stay with them. Discounts for Auto Safety Features Auto safety features will also lower your payments. Heading the list of money saving safety features is antilock brakes. Certain states — such as Florida, New Jersey and New York — encourage drivers to buy cars with antilock brakes by requiring insurers to give discounts. Check to see if you live in such a state, or if the insurance company you are considering gives a discount for this feature. Automatic seatbelts and airbags are also frequently rewarded with insurance discounts. Assume More Risk Two powerful ways to bring your coverage down is to assume a higher risk. This is done in two ways. The most dramatic reduction can be realized by dropping your collision insurance on an older car. If the car is worth less than $2,000, you'll probably spend more insuring it than it is worth. The whole idea of driving an older car is to save money, so why not get what is coming to you?Another way to redesign your policy — and save money in the process — is to ask for a higher deductible. The deductible is the amount of money you have to pay before your insurance company begins paying the rest. In other words, you pay for the little dings and bumps and let your insurance company pay for the heavy hits. For example, a common deductible amount is $500. This means if an accident you're in causes $1,500 worth of damage, you pay $500 and the insurance company pays $1,000. You could, however, set your deductible to $1,000. This still covers you against heavy losses, but it may decrease your monthly premium by as much as 30 percent. As a final note, if you are being strangled by high insurance costs, keep this in mind when you go car shopping next time. The more expensive and higher-performance the car is, the higher the premium will be. This is particularly true of cars that are frequently stolen, or are expensive to repair. The insurance company keeps this in mind when setting its insurance rates for this vehicle. Shop for a low-profile car and get your kicks in other ways. You'll love the savings you'll see on your auto insurance.
Auto Insurance Tips
10 STEP TO BUYING AUTO INSURANCE
IntroductionThe following simple steps will help you determine how much car insurance you need to carry. And it will also help you get the best coverage at the lowest price. If you are confused about any of the terms we use, be sure to review the glossary in "Little-Known but Important Insurance Issues."Step 1: Starting OutWhen it comes to auto insurance, you want to be adequately covered if you get in an accident but you don't want to pay any more than you have to. So how can you navigate your way through this murky subject?Keep telling yourself there is money to be saved. How much? Hundreds, even thousands, per year. For example, one of our editors typed all of his insurance information into a comparative insurance service. The quotes (for very basic coverage on two old cars) ranged from $1,006 to $1,807 — a difference of $801 a year. If you're currently dumping thousands into your insurance company's coffers because of a couple of tickets, an accident or a questionable credit rating, shopping your policy against others may be well worth the effort.Look at it this way — you can convert the money you save into the purchase of something you've desired for a long time. Hold that goal in your mind.Step 2: How Much Coverage Do You Need?To find the right auto insurance, start by figuring out the amount of coverage you need. This varies from state to state. So take a moment to find out what coverage is required where you live. Make a list of the different types of coverage and then return for the next step. (You will find a list of each state's requirements and an explanation of the various types of insurance in "How Much Auto Insurance Do You Really Need?" Also, check out "Little-Known but Important Insurance Issues" as it has a glossary of basic insurance terminology.)Now that you know what is required, you can decide what you need in addition. Some people are quite cautious. They base their lives on worst-case scenarios. Insurance companies love these people. That's because insurance companies know what your chances are of being in an accident, and how likely it is for your car to be damaged or stolen. The information the insurance company has collected over previous decades is crunched into "actuarial tables" that give insurance adjustors a quick look at the probability of just about any occurrence.So how much insurance should you buy beyond your state's minimum?Experts recommend that if you have a lot of assets you should get enough liability coverage to protect them. For instance, if you purchase $50,000 of bodily injury liability coverage but have $100,000 in assets, attorneys could go after your treasures in the event of an accident in which you're at fault and the other party's medical bills exceed $50,000.General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (that is, 50/100/25) given that half of the cars on the road are worth more than $20,000. Here again, though, let your financial situation be your guide. If you have no assets, don't buy excess coverage.Another issue to consider is that the limits of any uninsured and/or underinsured motorist coverage that you purchase cannot exceed the limits of your liability coverage. Such coverage, he said, can be valuable, as it will cover lost income if you're out of work for several months after being injured in a major accident.Your driving habits may also be a consideration. If your past is filled with crumpled fenders, if you have a lead foot or a long commute on a treacherous winding road, then you should get more comprehensive coverage. Keep in mind that you don't have to buy collision and comprehensive coverage. If your vehicle is older, if you have a good driving record and if there is a low likelihood that it would be totaled in an accident, but a high likelihood of it being stolen, you could buy comprehensive but not collision.Step 3: Review Your Driving Record and Current Insurance PolicyBefore you begin shopping for insurance you should check the following: the status of your driving record, your current coverage and the premiums you are paying.You should know how many tickets you have had recently. But time plays tricks and our memories repress painful incidents. If you can't remember how long that speeding ticket has been on your record, check with your state's DMV. If your record will soon improve, and the points you earned will finally disappear, wait until that happens before you get quotes. Nothing drives up the price of insurance like a bad driving record.Also, you should contact your auto insurance company or pull out a recent bill. Jot down the amount of coverage you have and what you are paying for it. Take note of the yearly and monthly cost of your insurance since many of your quotes will be given both ways. Now you have a figure in mind to try to beat.Step 4: Solicit Competitive QuotesNow that you have made several practical and philosophical decisions, it's time to start shopping. Begin by setting aside about an hour for this task. Bring all your records — your current insurance policy, your driver license number and your vehicle registration. Drink plenty of coffee. Have a phone at your elbow. And, of course, power up your computer.Begin with the online services. If you go to InsWeb.com or other online insurance quote sites, you can type in your information and get a list of comparative quotes. These forms take about 15 minutes to complete. If this bores you, just remind yourself how much you will be saving and that you can use the money to buy something nice for yourself. If the entire shopping process takes you two hours to complete and you save $800, you're effectively earning $400 an hour.A few things to keep in mind: 1) When you use quote sites, you may not get instant quotes. Some companies may contact you later by e-mail, and some that are not "direct providers" may put you in touch with a local agent, who will then calculate a quote for you. (A "direct provider," like Geico, sells an insurance policy to you directly; other companies like State Farm sell insurance through local agents. We'll discuss the pros and cons of each later.) 2) It's not easy to get quotes from these sites in all states — if you live in New Jersey, for instance, you'll probably find it faster to pick up the phone, since most insurers in this state currently don't provide online quotes.You can also try getting quotes from some of the insurance companies listed on the Edmunds.com Web site — Liberty Mutual, Geico or Progressive. These forms will take about 10 minutes each to complete.Step 5: Record and Compare QuotesWhile you're researching companies, make notes in a separate computer file or on a piece of paper divided into categories. This will keep you from duplicating your efforts. When you visit the different online insurance sites, you should take note of several things:
Annual and monthly rates for the different types of coverage — make sure to keep the coverage limits the same so that you can make "apples-to-apples" comparisons
An 800 number to call for questions you can't get answered online
The insurance company's payment policy (When is your payment due? What happens if you're late in making a payment?)
Discounts offered by the insurance company that pertain to you
The insurance company's consumer complaint ratio from your state's department of insurance Web site (more on this later)
The insurance company's A.M. Best and Standard & Poor's ratings (more on this later)Step 6: Work the PhonesOnce you have exhausted your online options, it's time to work the phones. Those companies you haven't been able to get an online quote from should be contacted. At times, doing this process verbally can actually go faster than the online counterpart, providing you have all the information regarding your driver license and vehicle registration close at hand. When you get a quote, be sure to confirm the price. Also, ask them to fax or e-mail the quote to you as a record.Step 7: Look for DiscountsWhile talking to the insurance companies' telephone salespeople, make sure you explore all options relating to discounts. Insurance companies give discounts for a good driving record, favorable credit score, safety equipment (for example, antilock brakes), certain occupations or professional affiliations and more. For more guidance in this area, check out "How to Save Money on Auto Insurance."Step 8: Choosing the Right Insurance CompanyYou now have most of the information in front of you that you need to make a decision. However, there is something more to consider. You can clearly see which company is least expensive, but when you need them to cover a claim, what kind of job will they do? To put it another way, which is the most reliable insurance company?Below, we offer a number of issues to guide your thinking and help you reach a decision:
Visit your state's department of insurance and check consumer complaint ratios and basic rate comparison surveys.
Get in touch with local body shops or dealerships you trust and ask which insurance companies they recommend.
Consider contacting an insurance agent for additional information about a particular company.
Check out the financial strength ratings for an insurance company by referring to the A.M. Best and Standard & Poor's ratings.
Look over J.D. Power and Associates' consumer satisfaction surveys reviewing auto insurance companies. Step 9: Review the Policy Before You SignSo, you've done your research, and you've decided on a company. Before you sign, though, read the policy. In addition to verifying that it contains the coverage you want, there are two clauses that you should look for in the contract:
Retain your right to sue. "Find out if you are giving up your right to go to court and will be forced into arbitration if there is a disagreement [between you and the insurance company]," one expert advised. "You're much better off if you don't give up this right…. It makes it easier for [insurers] to take advantage of you." If you find a clause to this effect, all isn't necessarily lost. "At least in theory, a contract is a mutual agreement, so you should be able to cross out that line in the policy," he said. If the company won't agree to the policy sans clause, then you should probably take your business elsewhere.
Avoid aftermarket parts requirements. If an insurance company has written in the policy that "new factory," "like kind and quality" or "aftermarket parts" may be used for body shop repairs, go to another company, one expert advised. If you own a relatively new car that you plan to keep for a while, you will probably be much happier if you spend a little more time researching companies on the front end rather than try to fight the company when you have a claim.Step 10: Cancel Your Old PolicyAfter you lock in the insurance policy you want with the company you select, you have two more things to do. The first is to cancel coverage with your existing insurance company. Second, if your state requires you to carry proof of insurance, make sure you either have it in your wallet or the glove compartment of your car (some experts discourage this, however — if your car is stolen, the thief has everything he needs to prove the vehicle is his).Now, there's one last thing to do: reward yourself for saving so much money on car insurance. Checklist
Determine your state's insurance requirements.
Consider your own financial situation in relation to the required insurance and consider buying more to protect your assets.
Review the status of your driving record — do you have any outstanding tickets or points on your driver license?
Check your current coverage to find out how much in premiums you are paying.
Get competing quotes from an Internet insurance Web site such as InsWeb.com, YouDecide.com and InsureOne.com.
Make follow-up phone calls to insurance companies to get additional information about coverage.
Inquire about discounts you might qualify for such as a multiple policy discount.
Evaluate the reliability of the insurance company you're considering by visiting your state's insurance Web site.
If you have chosen a new insurance company, remember to cancel your old policy
IntroductionThe following simple steps will help you determine how much car insurance you need to carry. And it will also help you get the best coverage at the lowest price. If you are confused about any of the terms we use, be sure to review the glossary in "Little-Known but Important Insurance Issues."Step 1: Starting OutWhen it comes to auto insurance, you want to be adequately covered if you get in an accident but you don't want to pay any more than you have to. So how can you navigate your way through this murky subject?Keep telling yourself there is money to be saved. How much? Hundreds, even thousands, per year. For example, one of our editors typed all of his insurance information into a comparative insurance service. The quotes (for very basic coverage on two old cars) ranged from $1,006 to $1,807 — a difference of $801 a year. If you're currently dumping thousands into your insurance company's coffers because of a couple of tickets, an accident or a questionable credit rating, shopping your policy against others may be well worth the effort.Look at it this way — you can convert the money you save into the purchase of something you've desired for a long time. Hold that goal in your mind.Step 2: How Much Coverage Do You Need?To find the right auto insurance, start by figuring out the amount of coverage you need. This varies from state to state. So take a moment to find out what coverage is required where you live. Make a list of the different types of coverage and then return for the next step. (You will find a list of each state's requirements and an explanation of the various types of insurance in "How Much Auto Insurance Do You Really Need?" Also, check out "Little-Known but Important Insurance Issues" as it has a glossary of basic insurance terminology.)Now that you know what is required, you can decide what you need in addition. Some people are quite cautious. They base their lives on worst-case scenarios. Insurance companies love these people. That's because insurance companies know what your chances are of being in an accident, and how likely it is for your car to be damaged or stolen. The information the insurance company has collected over previous decades is crunched into "actuarial tables" that give insurance adjustors a quick look at the probability of just about any occurrence.So how much insurance should you buy beyond your state's minimum?Experts recommend that if you have a lot of assets you should get enough liability coverage to protect them. For instance, if you purchase $50,000 of bodily injury liability coverage but have $100,000 in assets, attorneys could go after your treasures in the event of an accident in which you're at fault and the other party's medical bills exceed $50,000.General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (that is, 50/100/25) given that half of the cars on the road are worth more than $20,000. Here again, though, let your financial situation be your guide. If you have no assets, don't buy excess coverage.Another issue to consider is that the limits of any uninsured and/or underinsured motorist coverage that you purchase cannot exceed the limits of your liability coverage. Such coverage, he said, can be valuable, as it will cover lost income if you're out of work for several months after being injured in a major accident.Your driving habits may also be a consideration. If your past is filled with crumpled fenders, if you have a lead foot or a long commute on a treacherous winding road, then you should get more comprehensive coverage. Keep in mind that you don't have to buy collision and comprehensive coverage. If your vehicle is older, if you have a good driving record and if there is a low likelihood that it would be totaled in an accident, but a high likelihood of it being stolen, you could buy comprehensive but not collision.Step 3: Review Your Driving Record and Current Insurance PolicyBefore you begin shopping for insurance you should check the following: the status of your driving record, your current coverage and the premiums you are paying.You should know how many tickets you have had recently. But time plays tricks and our memories repress painful incidents. If you can't remember how long that speeding ticket has been on your record, check with your state's DMV. If your record will soon improve, and the points you earned will finally disappear, wait until that happens before you get quotes. Nothing drives up the price of insurance like a bad driving record.Also, you should contact your auto insurance company or pull out a recent bill. Jot down the amount of coverage you have and what you are paying for it. Take note of the yearly and monthly cost of your insurance since many of your quotes will be given both ways. Now you have a figure in mind to try to beat.Step 4: Solicit Competitive QuotesNow that you have made several practical and philosophical decisions, it's time to start shopping. Begin by setting aside about an hour for this task. Bring all your records — your current insurance policy, your driver license number and your vehicle registration. Drink plenty of coffee. Have a phone at your elbow. And, of course, power up your computer.Begin with the online services. If you go to InsWeb.com or other online insurance quote sites, you can type in your information and get a list of comparative quotes. These forms take about 15 minutes to complete. If this bores you, just remind yourself how much you will be saving and that you can use the money to buy something nice for yourself. If the entire shopping process takes you two hours to complete and you save $800, you're effectively earning $400 an hour.A few things to keep in mind: 1) When you use quote sites, you may not get instant quotes. Some companies may contact you later by e-mail, and some that are not "direct providers" may put you in touch with a local agent, who will then calculate a quote for you. (A "direct provider," like Geico, sells an insurance policy to you directly; other companies like State Farm sell insurance through local agents. We'll discuss the pros and cons of each later.) 2) It's not easy to get quotes from these sites in all states — if you live in New Jersey, for instance, you'll probably find it faster to pick up the phone, since most insurers in this state currently don't provide online quotes.You can also try getting quotes from some of the insurance companies listed on the Edmunds.com Web site — Liberty Mutual, Geico or Progressive. These forms will take about 10 minutes each to complete.Step 5: Record and Compare QuotesWhile you're researching companies, make notes in a separate computer file or on a piece of paper divided into categories. This will keep you from duplicating your efforts. When you visit the different online insurance sites, you should take note of several things:
Annual and monthly rates for the different types of coverage — make sure to keep the coverage limits the same so that you can make "apples-to-apples" comparisons
An 800 number to call for questions you can't get answered online
The insurance company's payment policy (When is your payment due? What happens if you're late in making a payment?)
Discounts offered by the insurance company that pertain to you
The insurance company's consumer complaint ratio from your state's department of insurance Web site (more on this later)
The insurance company's A.M. Best and Standard & Poor's ratings (more on this later)Step 6: Work the PhonesOnce you have exhausted your online options, it's time to work the phones. Those companies you haven't been able to get an online quote from should be contacted. At times, doing this process verbally can actually go faster than the online counterpart, providing you have all the information regarding your driver license and vehicle registration close at hand. When you get a quote, be sure to confirm the price. Also, ask them to fax or e-mail the quote to you as a record.Step 7: Look for DiscountsWhile talking to the insurance companies' telephone salespeople, make sure you explore all options relating to discounts. Insurance companies give discounts for a good driving record, favorable credit score, safety equipment (for example, antilock brakes), certain occupations or professional affiliations and more. For more guidance in this area, check out "How to Save Money on Auto Insurance."Step 8: Choosing the Right Insurance CompanyYou now have most of the information in front of you that you need to make a decision. However, there is something more to consider. You can clearly see which company is least expensive, but when you need them to cover a claim, what kind of job will they do? To put it another way, which is the most reliable insurance company?Below, we offer a number of issues to guide your thinking and help you reach a decision:
Visit your state's department of insurance and check consumer complaint ratios and basic rate comparison surveys.
Get in touch with local body shops or dealerships you trust and ask which insurance companies they recommend.
Consider contacting an insurance agent for additional information about a particular company.
Check out the financial strength ratings for an insurance company by referring to the A.M. Best and Standard & Poor's ratings.
Look over J.D. Power and Associates' consumer satisfaction surveys reviewing auto insurance companies. Step 9: Review the Policy Before You SignSo, you've done your research, and you've decided on a company. Before you sign, though, read the policy. In addition to verifying that it contains the coverage you want, there are two clauses that you should look for in the contract:
Retain your right to sue. "Find out if you are giving up your right to go to court and will be forced into arbitration if there is a disagreement [between you and the insurance company]," one expert advised. "You're much better off if you don't give up this right…. It makes it easier for [insurers] to take advantage of you." If you find a clause to this effect, all isn't necessarily lost. "At least in theory, a contract is a mutual agreement, so you should be able to cross out that line in the policy," he said. If the company won't agree to the policy sans clause, then you should probably take your business elsewhere.
Avoid aftermarket parts requirements. If an insurance company has written in the policy that "new factory," "like kind and quality" or "aftermarket parts" may be used for body shop repairs, go to another company, one expert advised. If you own a relatively new car that you plan to keep for a while, you will probably be much happier if you spend a little more time researching companies on the front end rather than try to fight the company when you have a claim.Step 10: Cancel Your Old PolicyAfter you lock in the insurance policy you want with the company you select, you have two more things to do. The first is to cancel coverage with your existing insurance company. Second, if your state requires you to carry proof of insurance, make sure you either have it in your wallet or the glove compartment of your car (some experts discourage this, however — if your car is stolen, the thief has everything he needs to prove the vehicle is his).Now, there's one last thing to do: reward yourself for saving so much money on car insurance. Checklist
Determine your state's insurance requirements.
Consider your own financial situation in relation to the required insurance and consider buying more to protect your assets.
Review the status of your driving record — do you have any outstanding tickets or points on your driver license?
Check your current coverage to find out how much in premiums you are paying.
Get competing quotes from an Internet insurance Web site such as InsWeb.com, YouDecide.com and InsureOne.com.
Make follow-up phone calls to insurance companies to get additional information about coverage.
Inquire about discounts you might qualify for such as a multiple policy discount.
Evaluate the reliability of the insurance company you're considering by visiting your state's insurance Web site.
If you have chosen a new insurance company, remember to cancel your old policy
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