Tips on Cutting the Cost of Your Auto Insurance

Are you paying too much for auto insurance? What would you do if I said you did not have to be paying all that money for car insurance? It is true that the majority of states require you to carry at least minimum liability insurance. If this is true, then why are you paying for full coverage if the state says you can carry minimum? At least with minimum liability insurance, any damage that you do or that is done to the other person will be covered. If they have at least liability insurance them the damage they cause to your car will be covered by theirs. The morale of the story is, you not have to carry full insurance if you don’t need it. Because each level of insurance has a different deductible amount, you can knock your bill even further down which in turn, will reduce your premium. Some of the factors you need to look into before dropping your full coverage include: What is the value of the car you are looking to drop your full coverage on? Do you own the car or is it on a lease? Know what will be covered and what will not be covered. After you take into account all of these factors, and only then, can you make an educated decision on whether or not to go to collision only.

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Do Americans Spend Too Much Money on Their Cars?

The price for a new car in America has been steadily rising. The average price for a new vehicle has now topped $31,000. Compare this to the average per-capita income in the United States in 2012, just $42,693.  As a percentage of salary, that’s 72.6%!  Sure, the average income of new car buyers might be higher than the average income nationwide, but without a doubt, it does seem that Americans are spending too much on their cars, given that most experts recommend spending just 30-35% of your salary on a car.

Given that more than 70% of new cars are financed or leased, people tend to look more at their monthly payment than the price of the vehicle as a while. Here too there are ways to determine whether consumers are spending so much, so why not delve into a way to determine if you are about to pay too much for a car?

Are You Paying Too Much for Your Car?

The quickest way to determine if you are paying too much for a car is to look at your debt-to-income (DTI) ratio. DTI is the amount of monthly payments you have compared to your gross (pre-tax) income. DTI includes rent/mortgage, cable, and every recurring bill in between. Lenders have a general rule of thumb that your DTI should not exceed 35 percent when you include the payments on the loan being considered. For example if you make $15 per hour for 40 hours a week you would have a weekly gross of $600 or $2400 per month. Based on that, a lender says your DTI should not exceed $840 a month.  Even with an income of 40 grand, you can only commit $1,167 a month to your bills.

Add that to the fact that the payment on a car that cost 30K is around $600 a month for a five year note and you can see how new cars are quickly becoming unaffordable for the average American. A quick and dirty rule of thumb is this:  set aside no more than 10% of your gross monthly income for your monthly payment, whether you’re financing or leasing.  This will ensure that you don’t overcommit on your payment, and find yourself struggling to make your payment each month. Even a single missed or late payment can wreak havoc on your credit score, so it’s to be avoided at all costs.

When Should I Buy a Car…in December or in January?

January-Car-Buying
Photo: John Goldsmith

A lot of our readers have been wondering:  is it better to buy a car in December or January? Well, the answer is:  it depends. Depends on what, you ask? It depends on the weather, inventory levels, manufacturer incentives, and more.

Weather

The most important variable between buying in December or January is weather and, along with that, your location. During those months, sales are slow because of the holidays, but they are even slower in areas where is snows heavily. The more snow, the slower sales are, and slower sales mean better deals. If it doesn’t snow in your area, the weather will not affect the price of cars nearly as much. Cold weather tends to affect the price of convertibles and sports cars more than any other type of vehicle.

Inventory

Inventory levels dictate quite a bit since cars sales is a supply and demand business. If the dealership has dozens of cars that have been on the lot for more than 30 days, the sales staff is going to deal vigorously. If people are walking the lot daily and money is flowing, dealerships are going to stick really close the the sticker price on every vehicle. Having said that, December is the month when most dealerships are facing the valuation of their inventory for tax purposes. Lowering their inventory to avoid excessive taxes can often help you get a better deal.

Current Incentives

Another item to consider is what manufacturer incentives are being offered in your area. This only applies to new car sales; however, you can frequently find vehicles from the previous model year that have never been sold. These vehicles will carry several layers of manufacturer and dealership incentives. Some of these vehicles may have been sitting on a lot for several months, spurring dealerships to find you even more savings.

Buying from a Private Party

Even if you are looking for a used car and/or looking to buy from a private seller the same rules should apply. Few people want to venture out in the cold to buy a car. The few that do only look for cars that they will be able to drive immediately. That means that drop-tops and muscle cars will sell slower, no matter who you are buying from. After taking the long way around, you can see that the answer to when the best time to buy a car is actually a combination of factors and truly depends on what is going on in your area at the time.