Insurance for New Cars Versus Used Cars

Is a new car really more expensive to insure than a used car? According to countless car owners, you’ll always pay more if you have a new vehicle, but how true is this, do auto insurance companies really place that much emphasis on the age of your car and, if so, what can you do about it?

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Is an Auto Insurance Policy Cheaper for New or Used Cars?

Generally speaking, a used car will be cheaper to insure than a new car, but the difference isn’t as big as you might think. In fact, we ran a few insurance quotes and found the difference to be less than 10% on average for most providers and up to 20% for providers like State Farm, Allstate, GEICO, and Progressive.

In truth, however, there are too many variants at play to say with any certainty that auto insurance rates are cheaper for used cars than they are for new cars.

​What do Car Insurance Companies Consider?

Insurers focus on risk. The only thing they care about is whether or not you are likely to make a claim. If the odds of you making a claim increase and the costs of that claim are likely to be high, your insurance costs will increase.

A new car is more likely to have advanced safety features, anti-theft devices, and other technology designed to reduce the chances of everything from minor dings and parking mishaps to full-on accidents. However, if major repairs are needed, the state-of-the-art features could be expensive to fix and replace, driving those insurance costs up.

For obvious reasons, new cars will also cost much more to replace than used cars. 

Car Loans and Full Coverage

Another reason new model cars may cost more to insure is that they are more likely to have financing. If you have financing on your car, you will be required to have comprehensive coverage and may also need gap insurance. That way, if anything happens, the lender doesn’t lose out.

Of course, this means that in addition to your monthly car payments you’ll be paying through the teeth for a full coverage car insurance policy.

How to Reduce New and Old Car Insurance

Just because new cars can cost more than older ones, doesn’t mean they always will. Many variables are at play here. If, for instance, you’re comparing a sports car that is over a decade old to a brand-new SUV with a high safety rating, the latter should always cost less (if all coverage is equal). And even if you have the former or have just purchased a new sports car or luxury car, there are still ways to save:

Compare Multiple Car Insurance Quotes

In our comparisons of used vehicle car insurance quotes vs new vehicle car insurance quotes, we found some notable differences and we only tested one state, one type of car, and one type of driver.

The differences between car insurance quotes can be staggering once you consider all minor details, including driving history, vehicle history, and more.

Don’t just assume that a specific insurer will have the cheapest rates and don’t base your decision on the insurer your friends/family use or the one whose commercial appealed to you the most. Compare all national and local providers and don’t forget about insurers like the USAA, which offers low-cost policies to current/former members of the military and their families.

Look for Car Insurance Discounts

Car insurance discounts are offered by most providers and relate to everything from your driving history to the type of car you drive. Some discounts are required under state law, but many are not and whether they are available or not will depend on your state of residence. Here are a few of the most common discounts:

  • Good Driver Discounts: Drivers with a history of clean, safe driving can benefit from reduced insurance premiums. They have proven themselves as responsible drivers and, as a result, are able to reap the rewards.
  • Good Student Discounts: Young drivers pay more for their car insurance than any other demographic, but there is some reprieve, and this comes in the form of a good student discount, which is offered to all students that maintain a B average.
  • Safety Features: Front-and-side airbags and anti-lock brakes can save you up to 40% on full coverage with some insurers. These features are standard on most cars so you may not have noticed this discount. However, once you try quoting for a car that doesn’t have these features you’ll understand just how important they are.
  • Anti-Theft Features: If the risk of theft is high in your area or for your car, your premiums will increase. However, you can save money if your car has an alarm, a tracking device or another anti-theft feature.
  • Membership Discounts: The biggest savings are offered to members of the military and their families, as they can save as much as 90% if they are on active duty and use specific providers. Discounts are also available through the AAA and the AARP for seniors going through providers like The Hartford.
  • Payment Discounts: These discounts are a little smaller but are also easy to acquire. Many providers will give you a discount if you choose Auto-Pay and a further discount if you go Paperless or pay in full.
  • Driver Courses: Prove your ability behind the wheel by completing defensive driving courses and other driver education courses. Most insurers will offer you a discount in exchange for finishing such courses.

Boost Your Credit Score

Credit reports will be checked during every insurance application. It may seem unfair, and even a little odd. After all, you’re applying for car insurance, not a credit card. But research suggests that bad credit drivers are more likely to claim than those with good credit, and quite significantly so.

To improve your chances of getting good rates, boost your credit score. You can’t reach an Excellent score overnight, but there are a few ways you can boost your score quickly and this short-term improvement should be enough to improve your chances of paying lower rates:

  • Repay Debt: The more of your debt you repay, the better your credit utilization ratio will be. This counts for 30% of your total FICO score.
  • Increase Credit Limits: Call your credit card providers and increase your credit limits. This will also increase your credit utilization ratio, and it won’t cost you a dime.
  • Stop Applications: Every time you apply for a new credit card, you’re hit with a hard inquiry, which can reduce your FICO score by 2 to 5 points. If you activate that card, it will take a further hit. Once the new credit limit is taken into consideration and your credit utilization ratio has been boosted, the pros should outweigh the cons, but that takes time, and in the short-term, your score will drop.
  • Become an Authorized User: By adding yourself as an authorized user to a parent’s credit card you can benefit from their great credit and high limits without being responsible for the debt.
  • Dispute Errors: Check your credit report, make sure all information is correct and if you notice any mistakes, correct them. You can contact the credit reporting agency directly, provide them with proof of their mistake, and wait for them to fix it.
  • Use a Credit Building Loan or Card: If your credit score is rock bottom then the above tips may not be enough to help. In such cases, you need to start from the bottom and work your way up, and that’s where credit builder loans and secured credit cards come in. These work just like traditional forms of credit, only all of the benefits are stripped away and the only thing remaining is the ability to build your credit.

Combine Cars and Policies

If you have multiple drivers in your household then consider adding all of them to the same policy. Obviously, that policy will increase, but you’ll pay much less than if you were to buy two separate policies. All car insurance companies will allow you to do this and many of them will even contact you when your child is ready to drive, offering you this service.

The bigger insurers also offer something known as a “multi-policy” discount. Typically referred to as “bundling“, this discount is provided to consumers who purchase multiple policies from the same provider, such as adding homeowners insurance to car insurance.

Consider your Coverage and Deductible

Your first step is to make sure you have the minimum coverage required by your state. This cover will span bodily injury liability, property damage liability and, in some states, it will also include uninsured/underinsured motorist cover, personal injury protection (PIP), and medical payments.

Get what you need and then consider how useful all other options are. Collision coverage will cover you if you’re involved in a collision that doesn’t involve another vehicle; comprehensive coverage will ensure you get a payout if your car is vandalized or involved in a non-collision accident. If you have an expensive car and want the best cover, go for it; if you have a cheap car and won’t stand to lose much in an accident, think about skipping it.

You can discuss your options with an insurance agent. They have experience in this field and can advise on the best course of action.

Look into Mileage-Based Insurance

Drivers who only use their cars for short commutes or occasional weekend driving should look into mileage-based car insurance. Many of the big providers offer specific programs that use devices and apps to track how much you drive and how well you drive, before setting your rates accordingly. 

Keep Your Car in Good Condition

Commit to regular oil changes, car washes, and other basic maintenance, and fix minor issues before they have a chance to grow into something more serious. Not only will this offer some much-needed peace of mind, but it will also keep your car running for longer and prevent breakdowns resulting from poor maintenance. 

Keep a Clean Driving Record

The more accidents you’re involved in and the more moving violations you receive, the higher your insurance costs will be in the future. A single speeding ticket could see your rates climb by as much as 30% and a DUI or DWI will trigger an even sharper rise.

By being responsible, there’s less chance you’ll be involved in a serious accident and more chance you’ll get cheaper car insurance rates the next time you renew.

Renew After Major Life Events

In addition to the type of car that you drive, your age, and your driving record, insurance companies will also consider some less-obvious factors when underwriting your policy.

For instance, rates are cheaper for homeowners than they are for renters, and married drivers will pay less than single drivers. As a result, it’s important to inform your insurer every time there is a significant life event. Not only could this result in a cheaper policy but it will also keep all of your information accurate and up to date.

Plan Your Next Car Purchase Carefully

Now that you know how important your choice of car is for your insurance premiums, you can make better choices in the future. You shouldn’t focus only on the cars that give you the cheapest insurance rates. In doing so, you could save a few hundred dollars, but only at the expense of driving a car you don’t really like.

But while prospective insurance rates aren’t everything, they are a small piece of the bigger picture and could help to sway you one way or the other. To help you with this decision, here are a few of the cheapest cars to insure:

  • Honda Accord, Civic, and CR-V
  • Jeep Wrangler and Cherokee
  • Toyota Tacoma, RAV4 and Highlander
  • Ford Fusion, Escape, and Explorer
  • Nissan Sentra and Altima
  • Chevrolet Silverado and Equinox

Buying New vs Used

Insurance rates should always be considered when choosing between a new car and a used car. However, let’s be honest here, there are more important things to consider. Sure, the insurance premiums can make a big difference, but saving a few hundred bucks on used car insurance or new car insurance may not be enough to cover the additional maintenance costs or sticker price.  

It’s important, therefore, that you consider all the pros and cons of buying a new vehicle vs a used vehicle:

Benefits of Buying Used vs New

The idea that new cars are much more reliable than used cars is somewhat dated. Sure, new cars are that little bit more reliable as they have driven very few miles. But most cars are built to last these days and it’s not uncommon for them to hit 50,000 and even 100,000 miles before they need any serious repairs.

The idea that new cars are much more reliable, therefore, is a complete fallacy, as is the notion that new cars offer many more benefits than used cars. Just take a look at the following ways that used cars are better than new ones.

Price

The biggest issue with new cars is the price. You’ll pay much more for a new vehicle than one that is a couple of years old. In fact, the average price for a new car in the United States recently climbed above $36,000, which is a staggering sum of money.

To put that into perspective, it’s more than the average cost of a wedding and it’s more than three times the cost of the average funeral. It’s also close to twice the average down payment for a house. Of course, very few Americans are paying all that money upfront and most take out an auto loan, but whether you’re paying for it upfront or over several years, it’s still a huge sum of money.

The average cost of a used car, on the other hand, is just over $20,000. This is still a lot of money, but this average cost has increased significantly in recent years as more consumers understand the benefits that used cars bring.

Depreciation

New cars depreciate at a rapid pace. In fact, you could lose a few grand as soon as you drive it out of the lot and after 12 months the average new car will lose up to 20% of its value. This means that a $35,000 car could be worth just $28,000 after a year, and it only gets worse from there.

Estimates suggest that new vehicles will continue to lose at least 10% of their value every year for the next 4 years. After 5 years, your shiny new $35,000 investment could be worth half what you paid for it. This is a substantial financial loss and it’s made worse by the fact you’re paying interest on it.

Used cars will also depreciate. But the rate of depreciation will be much slower. By purchasing a car that is just one or two years old, you’ll be getting many of the benefits that come with driving a new vehicle (well maintained, high-tech features) but without paying the cost of that rapid depreciation.  

Buy a Better Car

$25,000 to $35,000 can get you a brand-new Nissan, Honda or another cheap car. You’ll get all the features and a relatively well-built car, but as reliable as these vehicles are, they can’t quite compare to a BMW, Mercedes or Lexus.

One of the great things about buying used is that you can move to the next level, going from affordable to luxury. A brand-new low-end vehicle costs the same as a used luxury car, and because you’re buying from a reputable manufacturer known for producing quality, you know it will last.

Dings and Scratches

If a new car gets damaged, it’s heart-breaking. You just dropped tens of thousands of dollars on that vehicle and even the slightest ding or scratch can hurt you to your core.

With an old car, it’s less of an issue. Of course, damage is damage, and no one wants to experience it, but there’s no doubt that it cuts deeper when the car is new.

Benefits of Buying New vs Used

Everyone enjoys that new car smell and the idea they are the first person to drive the vehicle. This isn’t a real benefit, however, as no one can justify spending up to 50% more on a car just because of a smell or slightly cleaner fabrics, not when you can stick a car-freshener in there and pay for a deep clean. But new cars still have a wealth of benefits compared to used vehicles.

Finding the Right Car is Easier

Shopping for new cars is much easier than shopping for older cars.

The used car buying process is taxing and frustrating. You struggle to find the right car in the right budget and in the end,  you settle for something that is a little more expensive, not in the right color, and/or lacking in key features. Used car shopping is all about compromise, but the same can’t be said for new car shopping.

When you buy a new car, you have the freedom of choice. You can get the features you want in the color you choose, adding or removing options to tweak the price.

In both cases, you can also negotiate, but with car dealerships, you may have more options, as you can discuss free additional features and services as well as a reduced price.

Betting Financing Options

Car dealerships will do all they can to get you to sign on the dotted line and with new cars, they tend to have more maneuverability. You can get a brand new car with a low down payment and an affordable monthly payment.

The Latest Technology

New cars are fitted with the latest technology, including the most advanced safety features and anti-theft devices. These can help to reduce your car insurance rates as they make you less of a liability behind the wheel. More importantly, they can keep you safe and give you all the joy and convenience that comes from playing with new gadgets.

Technology is moving at a rapid pace, so even a difference of just a few years can be massive in terms of available technology.

Bottom Line: A Big Decision

Whether you choose a new car or an old car can have a big impact on your finances over the next few years and is, therefore, something you need to consider very carefully. But that shouldn’t stop you from getting a car that you want; a car that you’ll be comfortable driving, and a car that will keep you safe and get the job done.

Consider all these things, compare and contrast, and take your time. Spending a little extra time on this process and expending a little more effort could save you thousands in the long run.