You have decided it is time to buy a new (to you) car. You have already gone over your budget to determine how much you can afford to pay for a car and checked your credit score to find out what kind of financing you will qualify for. You may have even gone through the process of getting pre-approved for an auto loan. But, have you checked into the additional costs that will impact your budget once you purchase your car? There are three costs to be aware of: two costs - car insurance and car maintenance- will occur over the lifetime of your vehicle, and one cost - a car warranty- often takes place at the time of purchase and can be added into the amount you finance through a loan.
1: Car Insurance
When you buy a car, in the state of North Carolina, you are required to maintain insurance on that car. All car insurances are not the same, just as policy prices are different. It is to your benefit to research the cost of car insurance: what is the average cost for car insurance for you? Depending on your age, your gender, your driving record and the age of the vehicle you are interested in buying, insurance can vary greatly on a policy. Additionally, if you are getting a loan through a bank or credit union, they will require you to carry more insurance on your car, to protect the vehicle while you pay the loan back. There are actually 4 types of car insurance: Full coverage, comprehensive coverage, collision, and liability. Be sure that you only pay for what you want or need.
Liability Coverage: NC law G.S. 20-309 requires that all vehicles maintain continuous liability coverage, which protects you against injury or property damage from other drivers who may be under or uninsured. Liability coverage covers a certain amount of the costs involved if there is bodily damage to the driver or passengers in the vehicle, as well as covering damage to the car. In NC law, G.S. 20-279.21 defines the coverage amount you are required to carry.
Collision coverage: this insurance only covers collisions- with other cars, with stationary objects (where you run into trees, telephone poles, fire hydrants, bridges, etc.) and single car accidents.
Comprehensive insurance coverage covers all the other disasters that might befall your vehicle, outside of collision. Flooding, fire, trees falling on your car during a storm, theft, vandalism, and animal damage - that deer that just had to cross the road at the exact time you came around the curve, for example - are all examples of what comprehensive insurance covers.
Full Coverage is a policy that combines liability, collision, and comprehensive insurance so that your vehicle is fully protected. This seems like the ideal policy to have, but there are times when it may not be to your benefit to have full coverage. For example, if you have an old beater, having full coverage may not be to your benefit, because the payoff for the car, if it is totaled, is not worth the cost of the insurance.
It is important to know what kind of insurance you need before you buy, but it is also important to know that insurance companies will sell you a policy at a very attractive price, but have an annoying practice of raising those prices a few dollars with every renewal. It is in your best interest to shop around, yearly, to see who will give you the best price for your insurance needs.
It is also valuable to first look at the insurance agency where you have other insurance such as homeowners' or renters' insurance. Often, if you buy multiple policies from one agency, they will give you discounts. So, when you go shopping around for new auto policies, check out the cost of your other policies as well, since insurance agencies have the equally annoying habit of raising prices on all of their policies, not just auto insurance!
2: Car Warranties
Understand what is included in car warranties, especially if you are invited to purchase additional warranty coverage (which the car dealership will almost always do). A powertrain warranty only covers the major parts that make a vehicle mover: engine, transmission, and parts that get power to make the wheels move. It does not cover heating, cooling, brakes, etc. If the car you purchase is over 10 years old or has more than 150,000 miles, you will not be able to find a warranty, so, for your peace of mind, when you are looking at cars, make sure you aim for a vehicle that will qualify for a warranty - a vehicle under ten years of age and under 150,000 miles. Buying a warranty that covers as much of the car as possible is a good investment when purchasing a used car that no longer has the original factory warranty; the chance of something breaking on a used car is pretty likely, and a having a warranty can save you from having to continue to make car payments on a vehicle that you cannot afford to fix!
3: Car Maintenance
After purchasing a car, there is one more cost to be aware of, which is car maintenance. When people think about buying a car, beyond putting gas in it and perhaps changing the oil, they often forget to consider the cost of maintaining the car. Just like a human body, cars require fuel and liquids to keep them running, and sometimes things have to be replaced when they are worn out. Some of the most common car maintenance costs are:
· Quarterly Oil and Oil Filter Changes
· Brake Pads and Rotors
· Windshield Wiper Blades
· Fluids (transmission, windshield washer, antifreeze, power steering)
Many of these maintenance items are inspected by your mechanic either when you take your car in for an oil change or when you take your car in for its annual inspection. Our next blog will cover the details of car maintenance, so be sure to come back for more tips!