According to the National Automobile Dealers Association, used car prices remain relatively high, but the good news is prices may be coming down. In its latest guide on the used car industry, the monthly average price of used cars up to eight years in age dropped 2.1 percent in May, which is its largest monthly drop since October.
The reasons: “favorable credit conditions, relatively stable gasoline prices, rising consumer confidence, and rising home prices,” according to the June guide.
But before making a purchase, there are some considerations to make about how you’ll cover that used car with appropriate auto insurance.
How Much Is the Car Worth?
The first question to ask: How valuable is that used car? This will be an important factor in making your auto insurance decisions.
You should use resources like Kelley Blue Book to find out, since insurers will look at the actual cash value of the car—not necessarily the price you paid for it. And in some cases, insurers won’t even stick to the Blue Book price.
Let’s remember a steadfast rule in insurance: the more valuable your car is, the pricier your coverage is going to be. The reasoning: an insurer risks pricier replacements or repairs on a more valuable vehicle.
Do You Need That Coverage?
The value of your car will help determine your premium, but it’ll also help you figure out which coverage types to include in a policy.
Unlike most new car purchases, with a used car you’ll have options on whether to include comprehensive and collision coverage. These coverages help pay for repairs to your own car. Collision protects you financially when your vehicle has been damaged in situations such as single-car crashes, or multicar crashes that you caused. Comprehensive protects against a number of other-than-collision cases, like theft, vandalism, and fire.
If the value of that used car is rock bottom, you might consider dropping the extra comprehensive coverage purchase, since protecting it against theft and vandalism might not be worth it. (Who wants to steal or key an old beater?)
In the instance of collision coverage, an older car valued at a low price might preclude you from purchasing that additional protection. You need to weigh how much it would cost to replace the car against how much you’ll be paying in premiums.
According to the Insurance Information Institute, collision and/or comprehensive coverage might not be cost-effective if the car is worth less than 10 times the annual premium.
What Will Your Deductible Be?
Your deductible is an amount you select before buying your coverage that you’ll have to pay before the insurer will start covering repairs. Selecting a higher deductible will lower the premium you pay for coverage, but that also means you’ll have to pay more out of pocket after an accident if you want your coverage to kick in.
So, again, consider the value of the car. If the used car is low in value and you can pass over repairs after an accident, consider a high deductible for lower premium rates or even ditching the coverage altogether.
A prime example: If an old used beater of a car is valued at $1,000, you probably shouldn’t buy collision coverage with a deductible of $500, since that means the policy will only provide $500 worth of coverage.
But if you have a high-value used car that you’ll want to repair right when a crash occurs, you’ll want to consider the low deductible. Sure, that means higher insurance premiums, but it also means that you’ll pay an affordable deductible before the insurer begins paying for the rest.
When shopping coverage, see how much comp and collision cost at different deductible levels, and weigh for yourself whether the extra risk of out-of-pocket costs is worth it.
Is That Really the Final Price?
Remember that you can still net a few discounts on coverage, whether you’re driving a new or used car, if you take a driver education course or have certain safety features for the vehicle. So those are options to consider if the final premium price tag is too high and you want to knock it down a little.
Is That Car Safe?
More important than how a used car looks or how to insure it may be finding out where it comes from. You don’t have to trust sweet-talk from your dealer and/or seller on this one. You can find free and easy-to-use tools online to do your investigating for you.
Carfax, AutoCheck, and VINCheck all offer background check services for free. Those services all reference title information from the National Motor Vehicle Title Information System (NMVTIS), a government database storing backgrounds of vehicles.
All you’ll need is the car’s vehicle identification number, and the report will return information on whether or not the car has a history that involves it being flooded, salvaged, and/or totaled.