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Insurance
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Are you in the market for a new vehicle? Whether your current car has run its course or you are ready for your first set of wheels, there are a few important things to consider before you visit the dealership.
Buying a car is a huge investment — one of the largest purchases the average consumer will make, second only to their home. That is why it is so important to be organized and prepared before you take that first step.
With such a high price tag, it is imperative not to purchase on a whim — especially when you consider the weight a car payment will add to your monthly budget for the life of your three to six-year loan. Instead, take some time to consider these three things before you purchase your next vehicle:
3 Things You Should Know Before Purchasing a New Vehicle
Depreciation
On average, a new vehicle loses around ten percent or more of its value the moment you drive it off the lot. This is an important consideration because the "value" of your car will likely not automatically add up to the amount you paid for it. Instead, the value will be measured by the Actual Cash Value (ACV) that insurance will cover if your vehicle is stolen or totaled and declared a total loss. So, if you're in an accident and total your new car on the way home from the dealership — an unfortunate occurrence that is far more common than many would like to believe — insurance would only cover about 90% of what the vehicle was worth just minutes ago.
Offsetting the Depreciation Risk
Scenarios like this showcase the fact that insurance is not always enough to protect the investment you make when you purchase a new vehicle. After the insurance settlement, you could still owe the lender financing your vehicle thousands of dollars for the outstanding loan balance. Even if, by some miracle, your insurance company covered 100% of the ACV, that price wouldn't account for the dealer mark-up that was likely included in the purchase price of your vehicle.
To protect your investment, research Guaranteed Asset Protection (GAP), a valuable loan protection product that, in most cases, makes up the difference between what insurance covers and the amount you still owe. GAP is affordable and available for most new vehicles. In some cases, the protection product can even cover travel trailers, watercraft, and motorhomes.
Risk of Vehicle Theft
According to the National Highway Traffic Safety Administration (NHTSA), a vehicle is stolen every 31 seconds in the United States. The National Insurance Crime Bureau (NICB) reported that vehicle thefts have been steadily rising since 2019, with more than 1 million vehicles being reported stolen in 2023. Don't let your vehicle be a part of these statistics.
Offsetting the Risk of Vehicle Theft
There are many things you can do to reduce the chances of becoming a victim of car theft. A few of these include ensuring your car doors are locked, not leaving valuables in plain sight, parking in a well-lit area at night, and installing a car alarm.
However, even the most careful person could still have their vehicle stolen if it is a common target of thieves. Conduct your own research on various makes and models to see which ones are more likely to be stolen than others. LoJack® is a great resource for this, as they release an annual report of the most stolen vehicles.
In the unfortunate event your vehicle is stolen, your auto insurance will provide the coverage included in your policy after you pay your deductible, assuming you have a policy as required by law. When purchasing auto insurance, take the time to speak to your insurance agent to ensure you find the right amount of coverage for you and your vehicle.
Vehicle Maintenance and Repair
According to Consumer Affairs, the average cost of vehicle maintenance and repair jumped by 6.5% in 2023. Most manufacturer warranties last between 3-5 years. However, with exorbitant vehicle prices, many people find themselves holding on to their vehicle much longer than this.
Offsetting Exorbitant Vehicle Repair Costs
As time passes and the miles on your vehicle increase, the possibility of breaking down increases, as well. With costs for parts, labor, and overall repair increasing year after year, a mechanical breakdown can place a significant financial burden on a car owner.
You can try to prevent a costly breakdown by adhering to the maintenance timeline that is specified in your vehicle's manual. All manufacturers provide a manual for each car they build, but if yours has gotten lost or stolen, you may be able to download it for free online by visiting your manufacturer's website.
Regular maintenance is a great way to prevent a breakdown. However, it is not foolproof! Consider purchasing an extended warranty to help cover the cost should the unexpected happen.
Final Thoughts
Clearly, there is a lot to consider when purchasing a new vehicle. Before driving off the sales lot, be sure you know what you're getting yourself into. A new car is an investment that needs a lot of time, thought, and attention. Making your decision with the utmost care can be the difference between purchasing a vehicle that was worthy of the investment or financing an endless money pit.
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