Although it may not seem like it, owning and driving a car will be a major part of your financial picture throughout your adult life. And as with all financial aspects, it pays to be a smart and savvy decision-maker and shopper and to know how to save money on car expenses.
Although cars are considered an asset, it’s good to remember that cars are a depreciating asset. Every year, they decline in value due to wear and tear and also due to the release of newer models. As a result, cars are not an investment since they only hold value for a short amount of time.
So be smart about your cars. Making sound financial choices about the cars you drive, and the car insurance you obtain will equal more money in your pocket in the long run.
First, let's take a look at some tips on how to save money when you are buying a car.
Tips to save money on your car expenses
Saving on automotive expenses can be easier than you think. It just takes some know-how and effort. Check out these easy ways you can save!
1. Consider buying fairly used
A new car can lose anywhere from 10 to 20% of its value as soon as you drive it off the sales lot. Did you know that even if you return your brand-new car within a few days or even a few hours, it’ll still be worth much less than you originally paid?
Crazy, huh? It’s because the wholesale value on a car (the price the dealer pays to get the car) is usually much lower than the retail price on the car (the price you pay the dealer). When you buy a new car, the gap between wholesale and retail can be quite substantial.
Wondering how to save money on a car? Buy used! Buying a used car can prevent this large gap so that you can get a better deal. But buying a used car doesn’t have to mean buying an old beater!
A 1 to 3-year-old car in great condition can save you tons of money. And if you take your time to search carefully, you can find a used car that’s in near-perfect condition. So, buying a used car versus a new one can save you a bundle on car expenses.
2. Know what you are willing to pay in advance
Got a certain car in mind? Do some research before shopping to determine what the average cost of the car is. There are a ton of online tools that can help you make this determination. For instance, Kelley Blue Book and TrueCar.com are great places to start.
These sites list both the manufacturer's retail price and the suggested retail price. Once you have an idea of what your car should really cost you, you won't be easily moved by the "supposed" discounts the car salesman is selling you.
3. Know your credit score
Your credit score will determine what interest rate you get. But it can also help you negotiate the cost of the car. Those two things combined can save you hundreds or even thousands of dollars in car expenses. One important thing to keep in mind when financing a car is that you will be taking on new debt.
Some car dealers will tell you to buy the car now with whatever credit score you have and then refinance the car later. This is not a good idea especially if you are not in a rush. Set a goal to improve your credit if needed so you can qualify for the best possible interest rate from the start.
It's important that you buy what you can realistically pay off and make a plan to pay off the debt as quickly as possible. Don't end up paying a bunch of interest after working hard to negotiate a better price—that's counter-productive.
4. Secure outside financing
One of the most clever ways to save on automotive expenses is to secure your own financing in advance of visiting a car dealership. This can save you a ton of money in interest compared to what your dealership might be able to offer you.
Spend some time shopping around for the best interest rates on sites like BankRate.com. Stop by your local bank or credit union to see what they have to offer. Even a half-percentage difference on an interest rate can be a lot of money.
5. Factor the cost of owning a car into your budget
It's one thing to be able to purchase a car. But it’s a completely different thing to be able to afford to keep it. Owning a car includes purchasing gas, paying for insurance (more on that below), and maintenance costs for your car.
That's why it's good to know how to save money on car expenses. Figure out how much all these things will cost you and build them into your monthly budget.
6. Compare prices on service and maintenance costs to reduce your car expenses
Just because you bought your car at a dealership doesn't mean that it's the best place to take it for service. Most car dealerships make most of their money in the service department. They do this by providing the service and providing an "experience," but this can cost you a lot in padded costs.
Sometimes your dealership's service specials can't be beaten. However, when it comes to servicing your car or routine maintenance visits, be sure to compare prices across other reputable auto shops.
How to save on car expenses by getting the best trade-in value for your old car
So now that you know some of the best ways how to save money on a car let’s take a look at how you can save money when you’re ready to trade it in for a different one. And since most Americans will own ~9 cars over their lifetime, there’s a good chance you’ll trade in a car at some point.
1. Know the real value of your car
Just like you did before you bought your car, you’ll need to know how much it’s worth before you sell it. To determine the value of your car, you’ll need to know its year, make, model, mileage, and condition. That’s because trade-in values can vary wildly based on those factors.
And when you start getting offers? It's a good idea to compare them against one another to ensure you get the best possible deal.
Clever Girl Tip: It's a good idea to add a bit of markup (e.g., 10% - 15%) to your selling price. Dealers and private buyers will most likely try to negotiate your initial price down.
2. Spruce up your car
A clean car is more attractive to buyers and can help you get a better trade-in value. Consider getting your car and engine detailed in preparation for its sale. Also, showing that you have regularly serviced your car and kept it in good condition will make it extra attractive to a potential buyer.
3. Be aware of needed repairs
Before you put your car up for sale, be sure you are aware of any repairs that might be needed, even if you don't intend to make the repairs before you sell the car. Knowing what the repairs will cost you will ensure you don't take a low-ball offer on your car based on what your buyer tells you the repair will cost them.
For example, let's say the brakes on your car need to be replaced, and you get a repair estimate of $500. But if a dealer tries to knock $1500 off your trade-in price because of the needed repair, you can counter that by showing them the estimate of what the repair will actually cost!
4. Separate your trade-in negotiation from your next car purchase
If you choose to go through a dealer to trade in your car, be sure to negotiate the price for your trade-in first as opposed to building it into the purchase of your next car. This way, you are aware of what you are being offered, and you can be sure it's in line with the real value of your car.
It's very easy for the value of a trade-in to get severely discounted (or lowballed) when it's tied into the transaction of purchasing a new car. It might seem like a great deal because you'd be getting a discount on the car you are trying to purchase. But if you were to take a closer look, it might not be as good a deal as you think.
Reduce car expenses by getting a better insurance rate
So now you know how to shop for a used car and how to trade in a car to reduce car expenses and maximize your savings. But what about car insurance? Do you need it? And if so, should you pay top dollar for full coverage or skimp by with the state minimum and hope nothing goes wrong?
First, remember to include car insurance in your budget. Since many plans have you paying premiums twice yearly instead of every month, it’s easy to forget about this expense. Including it in your budget will prevent you from having to put your car insurance on a credit card.
Secondly, shop around for the best car insurance rates you can find. Getting a great deal on car insurance is a lot like buying a car; you need to shop around to find the best possible price. If you want the lowest rates for car insurance, you'll need to compare quotes from different insurance companies to find the best price.
Here are some other ways to reduce your car insurance burden:
1. Revisit your limits and deductibles
Raising deductibles and lowering limits is one way to reduce rates. However, this costs you more out of pocket if an accident or theft occurs. I recommend holding the minimum car insurance coverage only in cases where you absolutely can’t afford more or if you rarely drive.
It may be tempting to reduce your car expenses by lowering your coverage but consider how much more it will cost you if you have an accident!
2. Identify discounts to reduce your car expenses
Insurance companies offer all kinds of discounts. However, many of them go unnoticed and unused. Don’t wait for your insurance company to tell you what discounts they offer —it’s up to you to ask about them!
3. Mention life events to your insurer
Did you get married? Have a kid? Move to a city with great public transportation? Many companies view these events in a positive light when it comes to risk. As such, they’ll often provide lower rates because of them.
Save on car expenses by finding the best deals on car insurance
So, now you know how to reduce your insurance, but what about finding the best deal? Here are some simple tips for getting the best rates possible.
Putting multiple cars on the same policy or buying your car insurance from the same company that provides your home or life insurance results in discounts as high as 30 percent.
2. Adding safety features to your car
Installing or buying cars with safety features like anti-theft systems can land you savings on car insurance. Of course, the discounts depend on what the provider offers, so be sure to ask for the details when getting your quote.
3. Taking defensive driving courses
Insurers will often offer discounts of about 10% for taking a defensive driving course. Doing this not only saves you money on automotive expenses but helps you freshen up your driving skills too!
There are all kinds of ways to save on car insurance, but it’s helpful to know which companies offer the best rates for you. The cost of insurance depends on a variety of factors, including gender, age, and driving record.
As a woman, you already have an advantage in getting better discounts on car insurance. However, you don’t have to stop there! If you purchase car insurance in the right place and take advantage of all the cost-saving strategies available to you, you can get the best deal for your individual profile.
Use these tips to save on car expenses
Using these tips will help you save a bundle on car expenses! Buying a used car instead of a new one, finding the best insurance deal, and getting the best trade-in value when you decide to upgrade will keep you from overspending and put more cash in your pocket!