New Car Prices Are Falling. Will Car Insurance Premiums Follow Suit?

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  • Although car prices are still up, they're starting to cool.
  • The less expensive a vehicle is, the less expensive it might be to insure.
  • You can save on auto insurance by shopping around and raising your deductible.

Cheaper insurance would surely be great news for vehicle owners.

For some people, owning a vehicle is a luxury. For others, it's a must.

No matter which camp you fall into, you may have noticed that new car prices have soared over the past few years, largely due to a lack of supply. And when you pay more for a car, you don't necessarily just take on a higher monthly auto loan payment. You might spend more on car insurance, too.

Auto insurance companies take different factors into account when setting premium rates. These include factors related to you as a driver and factors related to your vehicle.

If you're an experienced driver with a clean record, that could result in lower premiums than someone who's a newer driver, or someone with multiple moving violations on their record. Similarly, if you buy a more expensive car, it stands to reason that the cost of auto insurance will be higher for you than for someone who buys a car costing $15,000 less. The logic is that the more expensive a car is, the more an insurance company will have to pay out to replace it if it gets destroyed.

But recent data seems to indicate that car prices are starting to come down, and that they'll continue to do so in the near future. And that could lead to a nice amount of savings on auto insurance.

Are new car prices dropping?

According to Edmunds, the average transaction price (ATP) for a new vehicle hit a record high of $47,681 in November 2022. However, for the first time in months, ATP came in below MSRP, which was $47,696 in November.

Meanwhile, Kelley Blue Book reports that the average new car buyer paid $49,388 for a vehicle in January. That's a 0.6% drop from December.

Now clearly, we're not talking about massive dips in car prices. The good news, though, is that in the course of 2023, prices are expected to decline by roughly 10% for used cars and by 2.5% to 5% for new cars, according to JPMorgan. So all told, new vehicle owners may be in for some relief, especially if that 5% projection winds up being closer to the mark. And once car prices come down, auto insurance rates could follow suit.

How to save money on auto insurance

Spending less on a vehicle could result in lower auto insurance premiums, which means you get to reap savings in multiple regards. But there are other steps you can take to keep your costs to a minimum.

For one thing, shop around with different auto insurers and compare rates. Secondly, consider committing to a higher auto insurance deductible.

It's usually the case that the higher your deductible, the less you'll be spending on premiums. And while you're taking on the risk of having to pay more each time you need to file a claim, you don't know for sure that you will, in fact, have to file a claim against your insurance. But you do know that you have to pay your premiums, so you might as well keep those low.

Finally, do your best to practice safe driving habits and take a defensive driving course if your record has some black marks on it. That could help you save on insurance costs, no matter what type of car you buy.

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