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December 21, 2015

How to Buy a Used Car and Insure It, Too

Couple_at_dealership-shopping_for_a_new_car-iStock_000036062238_SmallShopping for a used car? Here's some good news: Financing a used car is doable. Interest rates on used cars are generally higher than on new cars, but if you follow these guidelines you'll do pretty well.

  1. 1. Know Your Credit Score:
    A score of 680 or higher typically entitles you to a good rate. You are entitled to a free credit report every 12 months without an adverse effect on your credit rating to learn your score. Visit annualcreditreport.com for more information.
  • Know The Interest Rates:
    Interest rates are calculated based on the Federal Funds Rates, which are established by the Federal Reserve Bank of the United States. The Federal Funds Rate is what it costs banks to borrow the money from each other to fund their loans to you. Banks mark these loans up (retail them) when they extend them to you so they can pay back the loan they took out, as well as make a profit on it. By knowing the prevailing interest rates before you seek financing, you can determine whether a loan offer is a good deal.
  • Have An Alternate Lending Source:
    Dealer financing is definitely the most convenient. Generally though, you will pay for that convenience in the form of a higher interest rate. Even when purchasing a used car, many credit unions and banks will offer you financing -- as long as the car isn't older than around five years. However, if it's a car with a high resale value, regardless of age, you can generally find a financing company or two out there somewhere willing write you a loan. You can then sometimes use this outside loan to negotiate a better rate with a dealer.
  • Keep An Eye On The Bottom Line:
    It's very easy to get a payment to fit within your budget and still add up to be more than you can afford. The longer you stretch out a loan term, the more you'll pay in interest as you repay the loan. It's very possible to wind up paying too much for the car, even though the payment is well within your ability to manage. Ask what the total price of the car will be if the loan runs its full term.
  • Financing a used car is like any other financial transaction; you have to make sure everything lines up in your favor as much as possible.

    How_to_shop_for_a_used_car-iStock_000022987255_SmallSome of the factors auto insurers use to determine how much to charge you for coverage are outside of your control (age and sex for example). While these are circumstances of birth, if you want to make car insurance more affordable, the following factors will help you realize savings.

    1. Driving Record:
      It's a fact people with clean driving records pay less for car insurance. Moving violations of any kind, accidents, and other such incidents will drive the cost of your insurance premiums up.
    2. Driver Training:
      Even young males can qualify for insurance discounts if they've been through a recognized defensive driving course, so check with your carrier to see which ones they recognize. A nice by-product of this one is the fact that your young teen driver will be less likely to have an accident.
    3. Residence:
      Where you live definitely has a bearing on your insurance rates. By and large, suburban dwellers have lower insurance premiums than urban residents. The logic there is the higher concentrations of people, cars, and hazards in the cities mean the odds of an incident are increased. As go the odds, so go the premiums.
    4. Type of Car:
      Yes, a fire-breathing road rocket is going to cost more to insure than a velvety-smooth land yacht. Again, it goes back to the odds. The fire-breathing road rocket is considered much more likely to go off the rails, and when it does, somebody's going to have to pay.
    5. Couple_at_dealership-shopping_for_a_new_car-iStock_000055830468_SmallType of Coverage:
      If you're driving a newer car with a significant value, then you'll probably opt for full coverage. If you're driving an older car, with limited value, then you might be better off just going with liability insurance in case you hit somebody, trusting the other party's coverage to repair or replace your ride if they hit you.
    6. Coverage Limits:
      The more you ask an insurance company to be on the line for in the event of an untoward incident, the more they're going to charge you for coverage. The highest coverage limits carry the highest premiums. Lower coverage limits carry lower premiums, but you're also assuming more risk.
    7. Deductibles:
      Speaking of which, if you're willing to take on more responsibility for a repair, insurance companies float you a discount in exchange. Most people opt for deductibles in the $500 range, but if you go up to $1,000 (or more) your car insurance will cost less.

    Lyndon_conrad_bell-headshot-- Lyndon Conrad Bell, Motor Matters

    When it comes to automobiles, LYNDON CONRAD BELL finds beauty in functionality, performance, and utility. Since 1998, his byline has appeared on Forbes.com, Autobytel.com, SportsCarMonitor.com, MotorAuthority.com, and OnWheelsInc.com. For print publications, Bell has written for Essence magazine, On Wheels magazine, LX magazine, Upscale magazine, the Canadian Auto Press, and Auto World Weekly. A California State University graduate with a degree in Media Studies, Bell resides in the San Francisco Bay Area.


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