Buying a new car can be an exciting experience if your finances are in order and you can take your time shopping for the vehicle you like best. On the flip side, it can be a stressful experience if you need a new car right now and aren’t sure how you’ll pay for it.
If you’re in the latter position, you may be worried about coming up with a down payment, wondering if the car you can actually afford is safe and reliable, and whether your credit will get you a good interest rate if you need to take out a loan.
On top of these considerations is also the cost of insurance, which can easily add the equivalent of an extra three, four, five or more monthly car payments each year to your overall costs. Your premiums depend on numerous factors, including where you live. For example, the average annual cost of auto insurance nationwide is $1,318, according to Insure.com, an independent consumer insurance website. But if you live in Michigan, the most expensive state for insurance, that average jumps to $2,394 per year. If you live in Maine, though, your average insurance costs will run far less at just $864.
How to Lower Your Insurance Costs
The good news about your insurance premiums is that you can control many of the factors that add to the costs, beyond where you choose to live.
“Insurance rates vary depending on a driver’s record, age, miles driven, whether you’ve had any accidents or traffic infractions,” Loretta Worters of the Insurance Information Institute said. “The fewer claims you have, the better your prices will be.”
That’s because your insurance premiums are based on risk. So, If you take part in risky behaviors and get caught – such as having a DUI, having been involved in an accident or had traffic tickets for speeding, your insurance will be higher.
“The best way to reduce your insurance costs includes driving safely, taking driver training courses and improving your credit by paying your bills on time,” Worters said.
Here are more details on the four things that affect your insurance premiums the most, and how you can minimize their impact.
Your Driving Record
Avoiding accidents and traffic tickets are perhaps the most important things you can do to keep your insurance costs in check. And if you get a speeding ticket, for example, take advantage of any driver safety classes you can take that will get the ticket dismissed from your record.
Buy Practical Vehicles
The general rule is, the more expensive your vehicle, the more your insurance premiums will be. That’s not always true, but you can typically expect high-end luxury cars to be more expensive to insure.
This is a tough one for a lot of people who commute long distances for work. But the fact remains that you’re probably going to pay more for insurance if you commute 60 miles one way than if you commute five miles. If you can, live closer to your work or talk to your boss about working remotely a couple of days a week to help reduce your costs. Bonus for your boss: That drive time could be used working.
Consider Your Credit
In most states, your credit is an important factor in determining your insurance premiums, so keeping your credit in good standing (unless you live in California, Hawaii or Massachusetts, where credit scores are not used in determining insurance premiums) can have a tremendous impact on your annual insurance costs and how you budget for them.
Finding the Right Coverage
Whatever your financial situation, keeping your insurance premiums low while still getting quality coverage and service requires doing some comparison shopping.
“The best way to know if an insurance quote is a good deal is to compare different companies,” Worters said. “You don’t just want to go by price alone, however. While that’s important, you also want to make sure the insurance company is financially healthy to pay your claims.
“You can compare insurance quotes online to get an idea of what the costs are,” Worters continued. “You can also speak with an insurance professional if you have specific questions.”
By doing all you can to keep your risk factors at a minimum and find the best possible rates, you’ll spend less to insure your vehicle. That means you can put that money toward paying off your auto loan faster (here’s an explainer on how to pay down your debt faster for virtually any kind of debt), or putting extra money into your retirement or other savings. Either way, it helps to ensure your continued financial health.
[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]