New and used cars are currently going fast in this market, as the pandemic causes a shortage in computer chips.
But whether supply and demand is high or not, buying a car is always going to be an expensive endeavor, from financing, to sales tax, to car tabs. Insurance is another factor to consider when you’re making your budget for a car, which is why many people ask, “Is it cheaper to insure a new car or a used car?”
The quick answer is it may be cheaper to insure a used car, as US News & World Reports says. However, that’s with the caveat that there are many factors that go into setting a rate.
Remember that car insurance — and insurance generally — is based on the concept of putting in an amount of money a little at a time to protect the risk that your asset could be damaged or lost. If you have a very expensive asset to protect, replacing that asset is going to cost a lot more than if your asset is worth much less.
The Zebra analyzed the cost of insuring new and used cars and found that insurance premiums drop by 3.4% as a vehicle gets older.
There are different types of coverage that come with an insurance policy, and an insurance policy for a new car may require more coverage than a used car. For example, collision coverage, or the coverage of fixing or completely replacing your car should you get into an accident, may be required by some insurance companies if you are still leasing the vehicle, WalletHub reports.
You may also be required to pay Gap Insurance if you are still paying off a new car. If your car was totaled, this would cover the gap between how much money your insurance would give you to replace your car based on its value in the moment (remember, cars depreciate over time), and how much you originally signed a lease for to pay for the car.
Whether your car is used or new is not the only factor that goes into setting an insurance rate. Remember that you’re paying for risk, and some factors show your insurance company that you and your vehicle are less of a risk.
Setting an insurance rate is going to vary based on the answers to these, because they will determine how risky it will be to protect your asset. For example, a used car may have fewer safety features than a new car, which could increase the rate of insurance.
Another way to save on car insurance is to see if bundling options are available to you. For example you could save between 5-25% if you combine your home insurance policy with your car insurance, NerdWallet found.
Questions about car insurance? Contact a Sea Mountain Auto Insurance Specialist today!