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GuideCar Insurance

How to Factor Car Insurance into Your Budget

When budgeting for a new car, most people think in terms of a maximum monthly amount they can afford to pay.

The problem is that a lot of little extra fees and expenses can add up quickly and take you way over the initial budget.

To create an effective budget, your car payment needs to include the cost of car insurance, taxes, and other fees such as title, tag, and doc fees.

Of course, there are other costs related to owning a car - such as gas, maintenance, and repairs - but for this article, our concern is on budgeting for the fixed costs.

Car insurance is the most frequently overlooked expense and makes up 15 to 20% of your monthly car payment.

If you figure you can afford car payments of $500 per month, you need to subtract $75 to $100 to cover for car insurance. This means your car loan has to come out to between $400 and $425 per month (including taxes and other fees).

Car insurance for some cars costs more than others. The newer the vehicle, the more you can expect to pay.

Smaller cars also tend to have higher insurance costs due to the increased risk of injuries during an accident.

When properly budgeting for a car, we recommend the following guidelines:

  • Down payment of at least 20%
  • Maximum loan term of 48 months
Remember that car insurance will make up at least 15% of your monthly payment.

The best way to reduce this is to comparison shop for insurance BEFORE deciding which car to buy.

You may find that one car has a considerably lower rate of insurance. It's best if you can keep your car choices open to at least 2 or 3 different models.

You can get online insurance quotes for each car and compare the cost differences.

In most cases, you will find price differences of at least $500 per year if you comparison shop between 3 different vehicles.

3 Steps Every Car Buyer Needs to Take to Save Maximum Money

The key to getting the best deal is to gather price or lease bids from as many local dealers as possible. Then shop that best price around until no one can beat it. Here are the steps:

Step 1 Get Prices From My Trusted Network

Select the vehicle you're interested in to see if there are local dealers in my network who will provide you with their best upfront price. You will get direct access to an internet sales manager who you can further negotiate with online (no need to visit dealership).
Select Vehicle to Get Local Pricing

Step 2 Get Prices From TrueCar / CarsDirect

TrueCar, and CarsDirect are my top 2 online price quote recommendations. These services show you pre-negotiated prices from dealers closest to you - and the deals are usually pretty decent. But remember, you can still negotiate further.

Step 3 Complete my Checklist

Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

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About The Author

Gregg Fidan Gregg Fidan is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.
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