Drive Smart: Essential Tips for Buying a Car, Auto Insurance and Saving Big

By Sam Jarman

Whether you’re considering leasing or buying, evaluating new versus used cars, or figuring out how much auto insurance you need, we’ve got you covered. To guide you through these important decisions, we’ve enlisted the help of Sam Jarman (Financial Expert and Mercury Content Partner) and Justin Yoshizawa (Director, Product Management, State). With their insights and our comprehensive tips, you’ll be well-equipped to make informed choices that benefit both your wallet and your driving experience.

How Much Auto Insurance Should I Have If I Lease? Buy?

When considering financed vs. leased vehicles, the insurance requirements can differ. Understanding the right level of coverage can help ensure you’re adequately protected without overpaying.

Leasing a Car

Leasing a car often requires higher levels of insurance coverage due to the terms set by leasing companies. Typically, you’ll need:

• Liability coverage: At least $100,000 per person, $300,000 per accident for bodily injury liability, and $50,000 for property damage liability.
• Comprehensive and collision coverage: These coverages are usually mandatory to protect the leasing company’s investment. Comprehensive coverage protects against non-collision events such as theft or natural disasters, while collision coverage takes care of damages from accidents.
• Gap insurance: This covers the difference between the car’s value and what you owe on the lease in case the vehicle is totaled or stolen.

Jarmin adds, “When you lease a car, you need to have good liability coverage. Leasing companies often require higher limits to ensure potential damages or legal expenses are covered. This not only financially protects you but also the leasing company.”

Buying a Car

When you buy a car, you have more flexibility in choosing your coverage levels. However, it’s still essential to ensure you’re adequately protected:

• Liability coverage: Similar to leasing, you should have at least $100,000 per person and $300,000 per accident for bodily injury liability, and $50,000 for property damage liability.
• Comprehensive and collision coverage: While these are optional, they’re highly recommended. Yoshizawa suggests finding a balance: While these are optional, they’re highly recommended. Yoshizawa notes “Deductibles of $250, $500 or $1,000 are the most common. As a general rule of thumb, the higher the deductible, the lower the corresponding coverage premium.”

Whether you’re buying or leasing, bundling your auto insurance with other policies, such as home or renters insurance, can lead to significant savings. Yoshizawa shares his experience: “If you’re a homeowner, you have to be bundling home and auto. It’s one of the biggest ways to save.”

Jarmin also adds, “Bundling also simplifies your insurance management. Having all my policies under one provider means I have just one point of contact and one monthly payment. It makes everything so much easier to handle.”

What Is a Deductible in Car Insurance?

A deductible in car insurance is the amount of money you agree to pay out-of-pocket before your insurance coverage kicks in to pay for any covered loss. For example, if you have a $500 deductible and your car sustains $2,000 worth of damage, you would pay $500, and your insurance company would cover the remaining $1,500.

Selecting the right deductible is a balance between your financial situation and your willingness to assume risk. Generally, higher deductibles result in lower monthly premiums, while lower deductibles lead to higher monthly premiums. Yoshizawa provides some valuable insights on this topic:

“If you’re a good driver, consider opting for a higher deductible to save on monthly premiums. One way to gauge this is by looking at your driving history. If you haven’t been at fault in an accident in the last 10 years, you might benefit from a higher deductible, such as $1,000 or $1,500. However, if you’re not confident in your driving record, a lower deductible, like $500, might be more appropriate.”

Jarmin also suggests considering your financial situation, “It’s important to choose a deductible that you can comfortably afford. Higher deductibles can save you money, but you don’t want to be in a tough spot if you need to file a claim.”

Should I Buy a Used or Slightly New Car?

Choosing between buying a new car versus a used car depends on your budget, preferences, and long-term plans. Here are some factors to consider when making this choice:

Pros of Buying a New Car

• Latest features and technology: New cars have the latest safety features, technology, and fuel efficiency advancements. This can enhance your driving experience and provide better safety for you and your passengers.
• Warranty and maintenance: New cars typically come with comprehensive warranties that cover major repairs for several years. This can provide peace of mind and reduce maintenance costs.
• Customization: When buying a new car, you can choose the exact model, color, and features that you want, ensuring the car meets your specific preferences and needs.

Pros of Buying a Slightly Used Car

• Lower depreciation: One of the biggest advantages of buying a used car is avoiding the steep depreciation that new cars experience as soon as they’re driven off the lot. A slightly used car can retain its value better over time.
• Cost savings: Used cars generally cost less than new cars, which can result in lower monthly payments and insurance premiums. This can make a higher-end model more affordable.
• Certified pre-owned programs: Many manufacturers offer certified pre-owned (CPO) programs for used cars with extensive inspections and warranties. These programs can offer peace of mind when buying something new but at a lower cost.

Additional Considerations

• Vehicle history: When considering a used car, review the vehicle history report to ensure there have been no major accidents or issues.
• Financing options: Interest rates on loans for used cars may be higher than for new cars. However, the overall cost might still be lower due to the lower purchase price.
• Insurance costs: Insurance premiums can vary between new and used cars. Jarman suggests comparing options. “Comparing auto insurance quotes is one of the best ways to shop and save. I would also say be willing to switch over to another company. Of course, besides saving money, there are other factors to consider, such as having a good agent, the quality of the coverage, and the customer service.”

How to Calculate Car Down Payment

Calculating the down payment for a car can be a straightforward process if you follow a few essential steps. Here’s how to determine the right amount for your car down payment:

1. Determine the car’s purchase price: The first step is to know the total cost of the car you plan to buy. This includes the sticker price, any additional features you might want, and applicable taxes and fees.
2. Check lender requirements: Different lenders have varying requirements for down payments. Some may require a minimum of 10-20% of the car’s purchase price, while others might offer flexibility. Jarman recommends exploring your options, “There are so many lenders out there. The lending business is a lucrative business, so get as many quotes as possible.”
3. Assess your budget: Evaluate your financial situation to determine how much you can afford to pay upfront. This includes considering your savings, monthly income, and other financial commitments. A larger down payment can reduce your monthly payments and the overall cost of the loan.
4. Consider trade-in value: If you plan to trade in your current vehicle, its value can be applied toward your down payment. Get an appraisal of your car’s worth from multiple sources to ensure you get the best deal.
5. Factor in discounts and incentives: Sometimes dealerships offer discounts or incentives that can affect the overall cost of the car. These can sometimes be applied toward your down payment or reduce the amount you need to finance.
6. Calculate the down payment:

• Step 1: Identify the total cost of the car (including taxes and fees).
• Step 2: Determine the percentage of the down payment. For example, 20%.
• Step 3: Multiply the total cost by the percentage (e.g., $30,000 x 20% = $6,000).

7. Reassess and adjust if needed: After the initial calculations, reassess your financial situation to see if the down payment amount is realistic. Adjust accordingly to ensure you’re comfortable with the financial commitment.
8. Use financial tools: Utilize online calculators and financial tools to double-check your calculations and explore different scenarios. These tools can provide insights into how different down payment amounts will impact your loan and monthly payments.

Conclusion

The world of car ownership is a financial balancing act. From deciding between leasing and buying to choosing the right insurance coverage, every decision impacts your budget and peace of mind.

Mercury strives to make this journey smoother by offering affordable auto insurance. Whether you’re exploring higher deductibles to lower your premiums or seeking auto insurance discounts through bundling, we’re here to provide you with comprehensive protection at a price that fits your budget.