5 Steps for Getting a Car Loan

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: istock

The post 5 Steps for Getting a Car Loan appeared first on Credit.com.

Source: credit.com

How Much Life Insurance Do I Really Need?

Since it doesn’t have an immediate benefit – like health or auto insurance – life insurance may be the most underestimated insurance type there is. But if you die, life insurance will likely be the single most important policy type you’ve ever purchased.

And that’s why you have to get it right. Not only do you need a policy, but you need the right amount of coverage. Buying a flat amount of coverage and hoping for the best isn’t a strategy. There are specific numbers that go into determining how much life insurance you need. There are even numbers that can reduce the amount you need.

Calculate what that number is, compare it with any life insurance you currently have, and get busy buying a policy to cover the amount you don’t have. I’ll not only show you how much that is, but also where you can get the lowest cost life insurance possible.

How to Calculate How Much Life Insurance You Need

To make it easier for you to find out how much life insurance you need we’re providing the life insurance calculator below. Just input the information requested, and the calculator will do all the number crunching for you. You’ll know exactly how much coverage you’ll need, which will prepare you for the next step in the process – getting quotes from top life insurance companies.

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Now that you have an idea how much life insurance you need, the next step is to get quotes from top life insurance companies for their best life insurance products. And the best way to get the most coverage for the lowest premium is by getting quotes from several companies. Use the quote tool below from our life insurance partner to get those offers:

What to Consider when Purchasing Life Insurance

To answer the question of how much life insurance do I need, you’ll first need to break down the factors that will give you the magic number. You can use a rule of thumb, like the popularly quoted buy 10 times your annual income, but that’s little more than a rough estimate. If you use that as your guide, you may even end up paying for more coverage than you need, or worse – not have enough insurance.

Let’s take a look at the various components that will give you the right number for your policy.

Your Basic Living Expenses

If you’re not using budget software to track this number, a good strategy is to review and summarize your expenses for the past 12 months.

When you come up with that number, the next step is to multiply it by the number of years you want your life insurance policy to cover.

For example, let’s say your youngest child is five years old and you want to be able to provide for your family for at least 20 years. If the cost of your basic living expenses is $40,000 per year, you’ll need $800,000 over 20 years.

Now if your spouse is also employed, and likely to remain so after your death, you can subtract his or her contribution to your annual expenses.

If your spouse contributes $20,000 per year to your basic living expenses, you can cut the life insurance requirement in half, allowing $400,000 to cover basic living expenses.

But in considering whether or not your spouse will continue to work after your death, you’ll need to evaluate if that’s even possible. For example, if you have young, dependent children, your spouse may need to quit work and take care of them.

Alternatively, if you have a non-working spouse, there’ll be no contribution from his or her income toward basic living expenses.

In either case, your need to cover basic living expenses will go back up to $800,000.

Providing for Your Dependents

It may be tempting to assume your dependents will be provided for out of the insurance amount you determine for basic living expenses. But because children go through different life stages, there may be additional expenses.

The most obvious is providing for college education. With the average cost of in-state college tuition currently running at $9,410 per year, you may want to gross that up to $20,000 to allow for books, fees, room and board and other costs. You can estimate a four-year cost of $80,000 per child. If you have two children, you’ll need to provide $160,000 out of life insurance.

Now it may be possible that one or more of your children may qualify for a scholarship or grant, but that should never be assumed. If anything, college costs will be higher by the time your children are enrolled, and any additional funds you budget for will be quickly used up.

Life insurance is an opportunity to make sure that even if you aren’t around to provide for your children’s education, they won’t need to take on crippling student loan debts to make it happen.

But apart from college, you may also need to provide extra life insurance coverage for childcare. If your spouse does work, and is expected to continue even after your death, care for your children will be necessary.

If childcare in your area costs $12,000 per year per child, and you currently have a nine-year-old and a 10-year-old, you’ll need to cover that cost for a total of five years, assuming childcare is no longer necessary by age 12. That will include three years for your nine-year-old and two years for your 10-year-old. It will require increasing your life insurance policy by $60,000 ($12,000 X five years).

Paying Off Debt

This is the easiest number to calculate since you can just pull the balances from your credit report.

The most obvious debt you’ll want paid off is your mortgage. Since it’s probably the biggest single debt you have, getting it paid off upon your death will go a long way toward making your family’s financial life easier after you’re gone.

You may also consider paying off any car loans you or your spouse have. But you’ll only be paying off those loans that exist at the time of your death. It’s likely your spouse will need a new car loan in a few years. Use your best judgment on this one.

But an even more important loan to pay off is any student loan debt. Though federal student loans will be canceled upon your death, that’s not always true with private student loans. Unless you know for certain that your loan(s) will be canceled, it’s best to make an additional allowance to pay them off.

Credit cards are a difficult loan type to include in a life insurance policy. The reason is because of the revolving nature of credit card debt. If your death is preceded by an extended period of incapacitation your family may turn to credit cards to deal with uncovered medical expenses, income shortfalls, and even stress-related issues. An estimate may be the best you can do here.

Still another important category is business debts, if you have any. Most business debts require a personal guarantee on your part, and would be an obligation of your estate upon your death. If you have this kind of debt, you’ll want to provide for it to be paid off in your policy.

Covering Final Expenses

These are the most basic reasons to have life insurance, but in today’s high cost world, it’s probably one of the smallest components of your policy.

When we think of final expenses, funeral costs quickly come to mind. An average funeral can cost anywhere from $5,000 to $10,000, depending on individual preferences.

But funeral costs are hardly the only costs associated with total final expenses.

We’ve already mentioned uncovered medical costs. If you’re not going to include a provision for these elsewhere in your policy considerations, you’ll need to make a general estimate here. At a minimum, you should assume the full amount of the out-of-pocket costs on your health insurance plan.

But that’s just the starting point. There may be thousands of dollars in uncovered costs, due to special care that may be required if your death is preceded by an extended illness.

A ballpark estimate may be the best you can do.

Possible Reductions in the Amount of Life Insurance You Need

What’s that? Reductions in the amount of life insurance I need? It’s not as out-in-orbit as you may think – even though any life insurance agent worth his or her salt will do their best to ignore this entirely. But if you’re purchasing your own life insurance, you can and should take these into consideration. It’s one of the ways you can avoid buying more life insurance than you actually need.

What are some examples of possible reductions?

Current financial assets.

Let’s say you calculate you’ll need a life insurance policy for $1 million. But you currently have $300,000 in financial assets. Since those assets will be available to help provide for your family, you can deduct them from the amount of life insurance you’ll need.

Your spouse’s income.

We’ve already covered this in calculating your basic living expenses. But if you haven’t, you should still factor it into the equation, at least if your spouse is likely to continue working.

If you need a $1 million life insurance policy, but your spouse will contribute $25,000 per year (for 20 years) toward your basic living expenses, you’ll be able to cut your life insurance need in half.

But be careful here! Your spouse may need to either reduce his or her work schedule, or even quit entirely. Either outcome is a possibility for reasons you might not be able to imagine right now.

What About a Work Related Life Insurance Policy?

While it may be tempting to deduct the anticipated proceeds from a job-related life insurance policy from your personal policy, I urge extreme caution here.

The basic problem is employment related life insurance is not permanent life insurance. Between now and the time of your death, you could change jobs to one that offers a much smaller policy. You might even move into a new occupation that doesn’t provide life insurance at all.

There’s also the possibility your coverage may be terminated because of factors leading up to your death. For example, if you contract a terminal illness you may be forced to leave your job months or even years before your death. If so, you may lose your employer policy with your departure.

My advice is to consider a work policy as a bonus. If it’s there at the time of your death, great – your loved ones will have additional financial resources. But if it isn’t, you’ll be fully prepared with a right-sized private policy.

Example: Your Life Insurance Requirements

Let’s bring all these variables together and work an example that incorporates each factor.

Life insurance needs:

  • Basic living expenses – $40,000 per year for 20 years – $800,000
  • College education – $80,000 X 2 children – $160,000
  • Childcare – for two children for 5 years at $12,000 per year – $60,000
  • Payoff debt – mortgage ($250,000), student loans ($40,000), credit cards ($10,000) – $300,000
  • Final expenses – using a ballpark estimate – $30,000
  • Total gross insurance need – $1,350,000

Reductions in anticipated life insurance needs:

  • Current financial assets – $300,000
  • Spouse’s contribution toward living expenses – $20,000 per year for 20 years – $400,000
  • Total life insurance reductions – $700,000

Based on the above totals, by subtracting $700,000 in life insurance reductions from the gross insurance need of $1,350,000, leaves you with $650,000. At that amount, your family should be adequately provided for upon your death, and the amount you should consider for your life insurance policy.

Once again, if you have life insurance at work, think of it as a bonus only.

The Bottom Line

Once you know how much life insurance you need, it’s time to purchase a policy. Now is the best time to do that. Life insurance becomes more expensive as you get older, and if you develop a serious health condition, it may even be impossible to get. That’s why I have to emphasize that you act now.

Crunch the numbers to find out how much life insurance you need, then get quotes using the quote tool above. The sooner you do, the less expensive your policy will be.

The post How Much Life Insurance Do I Really Need? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Get Car Insurance Starting At $22/Month With Smart Financial

Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Learn more about how we make money and select our advertising partners.

If you haven’t checked car insurance rates in a few months, you could be overspending and not even know it.

And while it’s probably not something on the top of your to-do list, you should set a reminder to get a few quotes every six months. And if you do it through a website called SmartFinancial, you could be getting insider-level rates as low as $22 a month.

SmartFinancial is a digital marketplace for insurance. It has unique relationships with many of the top auto insurance providers, making it super easy for you to enter your information once and see all your quotes in front of you — making sure you get the best rate possible, without all the work.

See If You Can Save Up To $715 A Year On Car Insurance

When you fill out a one-minute form on Smart Financial’s website, you’ll be able to get quotes from multiple insurers, so you know you’ll get the best rate. If you want, you can speak to an agent to secure a low rate and finish the process in 10 minutes.

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Rates start as low as $22 a month and can save you up to $715 a year — that’s some major cash back in your pocket. And if you bundle it with home insurance, you can save even more.

So if you haven’t checked car insurance rates in a while, you are doing yourself a disservice. Get started here to see how much money you can save today with a new policy.

Kari Faber is a staff writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

When Should you Drop Full Coverage on your Car?

Full coverage car insurance covers you for most eventualities, but it is also expensive. You get what you pay for, and in this case, what you pay for is liability coverage, collision coverage, and comprehensive coverage.

The question is, how essential are all of these coverage options and at what point do they become surplus to requirements?

Your insurance coverage is never set in stone. You can increase your coverage as needed and drop coverage when it is no longer needed. Staying on top of everything is just a case of making the right choices at the right time.

What is Full Coverage Auto Insurance?

There are several different types of auto insurance, each covering you for something different. The most important cover is something known as liability insurance, which spans bodily injury and property damage and covers you when you injure another driver or their property.

Liability insurance is required in nearly all states and there are minimum coverage limits in all of them. To make sure you are legal, you need to meet these limits. If you want additional liability cover to protect your personal assets, you can pay more and aim higher.

Collision coverage and comprehensive coverage are also required if you want full coverage car insurance. With collision insurance, you are protected against damage caused to your own property, whether that damage is the result of a road traffic accident or a collision with a wall or guardrail. As for comprehensive insurance, it protects you against vandalism, theft, weather damage, and most of the things not covered by collision insurance.

A full coverage policy should also include some personal injury protection (PIP) cover, whether in the form of medical payments coverage or personal injury protection coverage. Both are designed to help you with medical bills and other expenses resulting from personal injury, while PIP goes one step further and covers you for transportation costs, childcare expenses, and loss of work.

All of these options are part of a full coverage insurance policy. There are also many additional coverage options and add-ons, but these aren’t necessarily part of a full coverage policy and, in most cases, need to be added for an extra cost. These options include:

  • Uninsured/Underinsured Motorist Coverage: Minimum cover car insurance won’t protect you if you are hit by an uninsured driver. It has been estimated that as many as 13% of all drivers on US roads are not insured and, in some states, this climbs as high as 25%. With uninsured motorist coverage, you will be protected for such eventualities.
  • Gap Insurance: When you purchase a brand new car on finance, the lender will often insist on gap insurance. A car depreciates rapidly and if that depreciation drops the value below the balance of the loan, the lender stands to lose out. Gap insurance protects them against such an outcome and covers the difference to make sure they get their money back if the car is written off.
  • New Car Replacement: A new car replacement policy will do exactly what the name suggests, providing you with a new vehicle in the event your current one is written off. Depending on the insurer, there will be limits concerning the age of the vehicle and the number of miles on the clock.
  • Roadside Assistance: With roadside assistance, you will be covered for essential services if you break down by the side of the road. It typically includes tire changes, fuel delivery, towing, lost key replacement, and more.
  • Pet Injury: What happens when your pet gets injured during a road traffic accident? If you have pet insurance, they will be covered through that. If not, many providers will give you a pet injury insurance add-on.
  • Rental Car Reimbursement: If your car is stolen or getting repaired, rental car reimbursement coverage will help you to cover the costs of a short term rental. This insurance option is often fixed at a daily sum of between $50 and $100 and lasts for no more than 30 days.
  • Accidental Death: A type of life insurance that focuses on accidents, paying a death benefit to a beneficiary when a loved one dies in an accident.

When to Drop Full Car Insurance Coverage

The value of the car you drive, along with your insurance rates and your driving record, will impact whether or not you should drop full coverage auto insurance. Take a look at the following examples to discover when this might be the right option for you:

1. Your Insurance Premiums are too High

If your car insurance rates are higher than the size of a payout following an accident, it might be time to trim the fat. Insurance is a gamble, a form of protection. You pay a small sum of money in the knowledge that you’ll be covered for a large sum if something untoward happens. But if you reach a point when your premiums begin to exceed the potential payout, it’s no longer useful.

2. You Have an Old Car

The lower your car’s value, the less you need full coverage car insurance. If you’re driving around in a car that costs less than $1,000 and you’re paying $2,000 for the pleasure, you may as well be throwing your money down a wishing well.

In the event of an accident, you’ll have a deductible to pay and that deductible could be near the value of the car. In such cases, it will nearly always make more sense to stick with minimum insurance and to just scrap your car if anything serious happens.

3. You Have a Large Emergency Fund

An emergency fund is a sum of money you keep to one side to cover you for emergencies, including job issues, medical bills, broken appliances, and car troubles. If you have such a fund available, you have a few more options at your disposal and can consider dropping full coverage.

It will save you money in the long term and if anything happens in the short term, you still have options and won’t be completely financially destitute.

Bottom Line: When It’s Needed

While there are times when full coverage is unnecessary and excessive, there are also times when it is essential. If you have a new car, for instance, you should get all of the cover you can afford, otherwise, you could be seriously out of pocket following an accident or theft.

 

When Should you Drop Full Coverage on your Car? is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How to Get Cheap Car Insurance

How to Get Cheap Car Insurance

For many people, car insurance is a major expense category in the household budget. And because it’s against the law to drive without car insurance, it’s not a budget item that can be eliminated unless you’re willing to go car-free. That doesn’t mean, though, that you’re stuck paying sky-high rates. Here’s how to get cheap car insurance. 

Learn about personal loan rates. 

How Insurance Companies Set Car Insurance Rates

Like health insurance, car insurance comes with both premiums and deductibles. The premiums are what you pay the insurance company every month to maintain your coverage. The deductible is what you’ll pay when you start making claims, up to a certain annual cap of, say, $1,000.

It’s worth noting that most people who say they want cheap car insurance mean that they want car insurance with low monthly premiums. But, as with health insurance, there’s a risk to having a policy with low premiums and a high deductible. In the event of a serious accident, you’ll have to meet that deductible. So, one way to get lower premiums is to opt for a higher deductible, but this is only a safe strategy if you have enough liquidity to cover your deductible in the event of an accident.

When car insurance companies set insurance premium rates they take several factors into account. These include applicants’ age, gender and driving history, as well as the type of car the applicant drives and the driver’s state of residence. While you can’t change your age, there are other steps you can take to get favorable rates from car insurance companies.

Types of Coverage

How to Get Cheap Car Insurance

Insurance companies charge more for comprehensive car insurance than they do for basic coverage. In most states you’re required to have liability insurance to cover any damage you do to another car or driver. The extent of that coverage requirement varies by state. In most states, you’re not required to have insurance to cover damage to your own car, or injuries you might suffer in an accident.

If you choose to add insurance coverage for yourself, you can opt for comprehensive coverage or collision coverage. Collision coverage, as the name indicates, covers damage from an accident with another car or an object, and in the event that your car flips. Comprehensive coverage covers things like theft, vandalism and natural disasters, too.

So, while you’ll almost definitely need to buy liability coverage to cover other drivers’ damages, you might not need to buy physical damage coverage for your own vehicle. It will depend on the terms of your lease if you’re leasing a car, and on your own assessment of the risks you face.

If you’re buying a valuable new car, you’ll probably want comprehensive coverage. If you’re paying cash for an older, used vehicle, you can probably get away with a more basic level of coverage. Whatever insurance option you choose for yourself, be sure to comply with state laws relating to liability insurance for any damage you might do to another driver. Once you have a car insurance policy, carry proof of insurance with you in your vehicle at all times. 

How to Get Cheap Car Insurance Rates

How to Get Cheap Car Insurance

In the long term, one of the best ways to get cheap car insurance is to be a safe, responsible driver. The worst drivers have high rates because the insurance company needs financial compensation for the high likelihood that it will have to pay out in the event these drivers get in an accident. If you have a spotless driving record, keep it up. If you have some accidents or tickets in your past, they shouldn’t drive your rates up forever. If it’s been a few years since your last incident, you can try calling your insurance company and asking for a lower rate, using your recent, safe driving record as a bargaining chip.

Another way to get cheap car insurance is to use the same insurance company for more than one type of insurance and get a discount for your loyalty. For example, you can contact the insurance company that provides your homeowners insurance, life insurance or motorcycle insurance and ask if the company can give you a good deal on car insurance. If you have more than one car, you can bundle the insurance coverage on both vehicles.

Your credit score will also affect your car insurance rates, just like it affects the rates you’re offered when shopping for a mortgage. If your credit has improved since you last bought car insurance, you may be able to negotiate your way to cheaper car insurance. And if you pay your car insurance premiums and bills on time and in full, you’ll build up goodwill with your insurer and might qualify for promotional rates.

If you don’t drive very much during the year, you might get cheaper car insurance from a usage-based plan than you would from regular car insurance. Track your mileage before you start shopping for car insurance and see if your low mileage makes you eligible for a better deal.

If you’re under 25, you’ll pay higher premiums, all things being equal. That’s because insurance companies judge young drivers to be riskier drivers. You can get lower rates by joining your parents’ plan, or by using your good grades to get a discount on rates, if your insurance company offers that option. Once you reach your mid-20s there’s no reason to keep paying the high rates that insurance companies levy on young drivers. You can ask your insurance company to lower your rate, or shop around for insurance from another provider.

Finally, the type of car you drive can affect your car insurance rates. Big, powerful and flashy cars are more likely to trigger high car insurance rates because the insurance company assumes you’ll be more likely to speed in that kind of vehicle, and that the vehicle will be a target for theft. Vehicles with high repair costs (such as foreign-made cars) may be more expensive to cover, too. In some states, having a used car will mean lower rates because rates are affected by your car’s replacement value. But in other states, rates are based on vehicles’ safety features, so having an older car won’t necessarily help you get cheap car insurance. If your car has special safety and/or anti-theft features, you may qualify for cheaper car insurance on that basis.

Bottom Line

If you don’t have a vehicle or you’re thinking about getting a new (or used) car, it may be worth doing some research to find out which kinds of cars will get you the lowest car insurance rates. And if you’re paying a lot for car insurance now, you may be able to get cheaper coverage by negotiating your premiums or switching providers.

Photo credit: Â©iStock.com/andresr, Â©iStock.com/ipopba, Â©iStock.com/kate_sept2004

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