Driving Costs Up and Away
For many, the cost of owning and running a car has become so expensive that it is almost prohibitive. Most people who own a car will know that costs continually go up overall, but identifying and isolating which specific elements are increasing and by how much can be more difficult.
According to the AAA, their most recent figures show fuel prices went down by just under 25% for the last year, maintenance costs up 3%, finance charges up 2% and insurance costs up to a very conservative 10%. What is equally important to realize is that many of the decisions made before purchase will have a lasting impact on pricing and long term servicing and maintenance costs of the vehicle.
Anyone considering buying a new car should consider the option of leasing one instead. Many people think of leasing about commercial sales or fleet sales, and while that was the case a few years ago, most major manufacturers now actively pursue the option of leasing vehicles to individual customers. Many have specific schemes such as Ford's red carpet lease scheme which can make leasing a very attractive financial option.
From the customer's point of view, it is good to think of it more as a long-term rental. Lease deals are normally for three or four years, and the repayment costs on a monthly basis are normally considerably less than they would be if a similar vehicle were bought outright.
People will normally spend a bit of time deciding what type of vehicle or car they want and which best suits their needs. From a financial point of view, it is worth considering how long the manufacturer's warranty is on the vehicle. Some manufacturers, such as Hyundai offer a 10-year warranty in the US, which, in terms of running costs, makes it a considerably more attractive option than on some other cars where the manufacturer's warranty is much less.
Understanding your credit score is an important part when obtaining credit or finance for the vehicle. By law, you are entitled to one free credit report a year from all of the three major credit bureaus, and it is a good idea to obtain a copy and check the report prior to beginning the process of buying a car.
The credit report will detail a significant amount of personal and financial information that is used to determine whether or not to lend money, and if so on what terms and conditions. Check your credit report for accuracy and make sure the information in it is accurate and up-to-date. Certain information is by law only allowed to be used in a report for a certain number of years, after which time it is invalid and cannot be used, and it is important to make sure that this has been complied with.
Before beginning the negotiations to buy any car, do some research and have your own idea of what a car is worth, and how much you are prepared to pay for it. If buying a new car, this can be quite a detailed process. There will be a manufacturer's retail price, the MSRP, often known as a list price. You can expect a significant reduction on this, although how much will depend to an extent on how willing you are to negotiate. If buying a used car, find out some idea of its current market value. This can be done using Kelly's Blue Book and will put you in a strong position to know what you should be spending.
Dealership fees are a notoriously dodgy way that some dealers use to bump up the final price of the vehicle and should be carefully scrutinized before signing any contract agreeing to the sale. Dealership fees are normally referred to as paperwork and are simply the documents that the dealership has to produce to finalize a sale with the customer. Some dealers will agree on a final price, and then once that has been agreed use so-called dealership fees to add a considerable amount of money to the final contract. Make sure that any amounts with regard to dealership fees are agreed before the final is completed.
Once you have decided what car to buy, do the initial negotiation by phone/email before even entering a showroom. Most car dealerships have internet dedicated sales departments.You have much more control over the process at this point because you can simply walk away and negotiate a much better deal somewhere else. When negotiating the price, bear in mind that this is your opportunity to do a deal in other areas of the sale as well. Things such as extended warranties, maintenance and servicing plans, end of lease agreements etc are all able to be negotiated, and this is your opportunity to save a considerable amount of money on long-term running costs.
When buying a car it is worth finding out its insurance grouping, and getting potential estimates as to how much it is going to cost you, depending on what type of insurance you want to have. This will give you a preliminary idea of running costs in the context of your overall annual budget.
Gap Insurance is designed to cover the difference between the amount you eventually pay for the price of the vehicle, and it's actual resale value in the event that it is destroyed or written off in an accident. This insurance is normally mandatory when you have any type of auto loan, as there will likely be a sizeable gap between what you paid for the vehicle, and what your insurance company will offer in terms of its current market value at a time of loss.
Before negotiating the sale of a vehicle, it is a good idea to get two or three different credit quotations from both the main dealership, such as Ford Credit and from other financial institutions such as a bank or a credit union. Credit unions often offer the best finance deals, but you will need to be a member of one in order to qualify.
Getting pre-approved for a car loan puts you in a much stronger position to negotiate the finance with a dealership. Remember that all areas of the finance agreement are open to negotiation, including the size of the deposit, the interest rate for the period of the loan and the length of the loan period itself.
While all of the above may seem a bit serious in terms of the fun and excitement of buying a new car; they can all make a significant difference to the long-term running costs of the vehicle. There are other things to consider as well in terms of reducing the amount spent on the annual maintenance costs.
For many people, the annual cost of insuring the vehicle is their main expense and the one area where people try to cut costs. It is important to understand the make-up of your auto-insurance policy, and what you are being charged for and how much. Most auto insurance policies will have sections on liability for bodily injury, physical damage, comprehensive insurance and collision damage. There will be a legal requirement for a certain dollar liability figure, and beyond that what type and how much insurance you buy is a personal choice.
Your insurance policy will also have some additional voluntary extras which may be included in the price, and you may or may not require. These can include emergency roadside services, including temporary accommodation and repatriation of vehicle and passengers, optional car rental and travel expenses, medical payments including medical services and medical expenses and death and dismemberment benefits relating to death, loss of sight/limbs, etc. All of these additional extras can bump up the cost of your insurance and is a good idea to check and see if you want/need them as they will affect how much you pay on an annual basis. It is also worth noting that your credit score will indicate your financial standing to your insurance company, and will have an impact on your auto insurance costs.
Reducing Insurance Costs
The first thing to do is to understand the various factors that insurance companies rate on, and then see if there is anything you can do to improve the risk element of these factors. The most common ones are, your physical location i.e. where you live, your age, your driving history, the amount of no claims bonus, the deductible, the number of drivers who can use the vehicle and their age, as well as the vehicle itself.
Most of these are difficult to alter to any great extent but bear in mind that different insurance companies rate elements differently, and so when shop around as insurance rates can differ quite noticeably.Some manufacturers do have arrangements with certain insurance companies, Like Hyundai with Liberty Mutual, who can offer preferential rates. Insurance companies will also offer numerous different discounts, which can be worth considering but can also be quite confusing.
Use Cost Comparison Sites
The internet has spawned some cost comparison sites, and it is possible to get some different quotations from each one. What is important is to make sure that the quotes can be compared on an actual like-for-like basis. Each cost comparison site is likely to have a slightly different arrangement with different insurance companies so that you may get different quotes on different sites for the same insurance company, so shop around
Certain basic things can also reduce insurance costs such as car locks and anti theft devices, making sure the vehicle is locked up overnight, etc. Check with the insurance company to see what they recommend and what they are willing to give discounts for.
Sometimes referred to as black box technology or tracking devices. This is an option now commonly being offered to motorists by insurance companies. It is essentially a tracking device that is fitted to your car and monitors where you drive, how much you drive and your driving habits and how safe or not they are It gives the insurance company a much more detailed sense of your driving, and they will rate you accordingly.
For people who are safe drivers and do not use a car a huge amount, it can potentially offer significant savings. The trade off of course is that it allows insurers to access drivers private data, and the subsequent lack of privacy.
Refinancing a Car Loan
The mechanics of refinancing are actually very simple and can be done at any point in the loan, even quite soon after the loan has been taken out. Depending upon how the original loan is structured, the majority of repayments in the first year/eighteen months will be mainly interesting, and refinancing during this period can save a considerable amount of money.
People refinance for two main reasons 1) because interest rates have come down and 2) because they want to reduce their monthly payments. Refinancing a loan simply means approaching another lender who agrees to repay the original loan and issues a new one on different terms and conditions. This can be a fairly straightforward way to improve the finances of the vehicle, especially if your credit situation improves during the period of the loan and you can take advantage of that by having a better credit score.