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Buying and insuring a used car

Your guide on how to buy and insure a used car

In this guide, we'll explore what steps you need to take when buying a used car, how much auto insurance you should buy and how to make sure you leave the lot with insurance coverage in place.

Buying a used car can save you money on both the purchase and auto insurance, but you need to make sure you do your homework and find the right car insurance protection for you, your vehicle and your situation.

There are benefits of buying a used car: the car's value has already depreciated so you won't pay as much as a new car and you may have more wiggle room to negotiate a sales price for a used car.

The downsides of getting a used car: most states don't have the same "lemon law" consumer protections as for new cars, you'll need to take extra steps to review the vehicle's history, and you might not be able to find exactly the vehicle you want in the right color with all of the right features at the right price.

In this guide, we'll explore what steps you need to take when buying a used car, what auto insurance you should buy and how to make sure you leave the lot with the right insurance coverage.

Tips for buying a used car

Buying a used car takes homework, research and persistence -- whether it's your first car or next car and whether it's a clunker or a recent model year.

There are many similarities between buying a new car or a used car, but there are a few ways that car shopping is different:

  • You'll need to cast a wider net to find vehicles. When you shop for a new car, you can usually list what you want to the dealership. The dealer can then search for the make, model, color, and features, and usually finds the right car for you. Buying a used car isn't that easy and usually means searching databases, online forums and local car lots to find what you want.
  • You'll need to research more. A new car doesn't have a past. A used car may look shiny on the outside, but you may not know that it's been completely repaired after a major accident. You'll need to check the vehicle's history to make sure there aren't any red flags. On the plus side, you're able to read reviews from other drivers, know other issues about the vehicle type and see the car's safety ratings and recalls.
  • You have more wiggle room to barter price. You may be able to knock down the price further when you buy a used car. A new car dealership may not be able to give you the price that you want on a new vehicle, but a used car dealer might be able to shave more money off.

 

Researching a used car’s history

You don't know a car's past by looking at it, but the good news is there is a way to explore its history. You can research a specific used car's history by running the vehicle identification number (VIN). If you're interested in a used car, you should run the VIN before starting any serious negotiations with the car dealer. The last thing you want is to jump to an agreement and then find out at the last minute about a problematic vehicle report -- or even worse find out after you've driven the car off the lot.

You can use the VIN to check the National Motor Vehicle Title Information System (NMVTIS), which was created and overseen by the U.S. Department of Justice (DOJ) to stop the concealment of flood damage and other vehicle histories. It is meant to help protect you from unsafe vehicles being resold and title fraud (saying clean title when has been in flood, etc.).  It is the only national database that all insurance companies, salvage auctions, junk yards and auto recyclers are required by federal law to report loss and junk/salvage vehicle.

A NMVTIS report must be purchased from an approved NMVTIS provider.  It will provide you with information on five key indicators: 

  • title information
  • brand history
  • odometer reading
  • total loss history 
  • salvage history

Another federal agency, the National Insurance Crime Bureau (NICB), maintains a database called VINCheck that allows consumers to input a VIN to check for a stolen or salvage vehicle. This database, however, is not comprehensive as it only gets reports from vehicles that were insured by participating companies. The VinCheck is free to consumers and you can do a maximum of five searches within a 24-hour period.

You can also purchase a comprehensive vehicle history report, which will tell you a vehicle's accident history, previous owners, correct odometer mileage, major repairs and warranties on the vehicle.  A few companies that offer vehicle history reports include:

 

This report also tells you the vehicle's "lemon" status. Federal lemon laws cover new cars, but they can also cover used cars if the vehicle is still under warranty. This is often the case when a dealership certifies a used vehicle. Also, a few states, including Massachusetts, Connecticut, New Jersey, New Mexico, New York and Minnesota, have stricter lemon laws for used cars, which can require dealers to offer warranties and take back vehicles that have problems.

If you are working with a major car dealership or car-selling site, most will offer to provide you with a vehicle history for free. It costs to get the report if you order it yourself and keep in mind if you will need to check more than one VIN as you are shopping for a used car, you should purchase a package where you can run multiple VINs. If you’re shopping with private-party sellers, it’s worth the expense (running typically from $25 to $100) to get the history of a car.

 

Doing a proper used car inspection

You'll also want to give the vehicle a close inspection. You don't need to be a car enthusiast to give the vehicle a once over. Here's what to look for:

  • Dents and rust.
  • Wear and tear on tires.
  • Interior damage.
  • Heat and air conditioning issues.
  • Radio, power seats, power windows, etc. problems.


Something you may not think of is flood damage. You'll want to check the interior and exterior for any flood-related damage. Look for rust on the inside of the vehicle and water damage to the upholstery.

In addition to visually inspecting the car yourself, it’s recommended by experts that you take the time, and money, to get a trusted mechanic to give the car a full review before buying it.

Including used car insurance cost in your buying budget

While you’re researching cars to buy, don’t forget to take into account the cost of insurance so you can be sure you can afford to insure it after you purchase it. Used cars are typically cheaper to insure than new ones, but not always, so don’t guess. Our used vehicle insurance rates tool gives you an average cost, so you don’t have to call or go online to get a quote for every car you see in your car search. Doing this as you decide what used vehicle you want to buy will help you make sure the cost of insurance and the car are within your budget.

Our tool gives you an estimate of what auto insurance costs you’ll pay for the used car models you are shopping for. After you have narrowed down your choice it’s wise to get the VIN for vehicle(s) that are still in the running for you to buy and get personalized insurance quotes to see which vehicle will be more economical to insure. Why does this matter? You could pay hundreds or even thousands more depending on the vehicle. Once you decide on the car to buy, you can give that VIN to multiple insurers to see which offers the lowest quote.

How much auto insurance coverage to buy for your used car

Before getting quotes, map out what levels of comprehensive, collision and liability insurance you want.

Remember to be sure you compare rates for the exact same coverage levels -- an apples to apples comparison -- as you shop around. 

The level of insurance you need for your used car depends on your vehicle and situation. For instance, an older car may not need as much insurance as a one-year-old car.

One caveat: Insurance companies take an entire model’s claims history when devising rates. This means you will likely pay higher auto insurance rates regardless of your driving record if your car's model is often stolen, gets into many accidents or its drivers receive many tickets.

When choosing auto insurance, the first thing you need to decide is how much liability insurance to get.

How much liability insurance you need

Liability insurance covers injuries to people in another vehicle or property if you’ree legally liable for an auto accident. Every state except New Hampshire requires at least a minimum level of liability insurance.

Liability insurance protects you and your assets in case of an accident. A used car can do as much damage to people and property as a new car so getting the right level of liability insurance is important.

Liability coverage is broken into two types: bodily injury and property damage. Though state minimums are much less, experts say you should get at least:

  • $100,000 coverage for bodily injury per person
  • $300,000 coverage for bodily injury per accident
  • $100,000 property damage for your vehicle

The higher the coverage the better since if your limits are exceeded you’ll be personally responsible.

Do you need comprehensive and collision coverage?

Your next task is to decide if you want comprehensive and collision insurance. Collison is what covers you when your car is damaged because of an accident with another vehicle or hit by an object. Comprehensive coverage covers thefts and damage caused by flooding, fire, vandalism and other causes beyond your control. The national average cost for comprehensive insurance is $134, while the average cost for collision coverage is $290, according to the Insurance Information Institute, an industry trade group.

Comprehensive and collision come with a deductible, or, the amount you pay out before your insurance kicks in to pay for repairs when you file a claim. So, that means you also need to think about what level deductible you want to pay. The higher the deductible, the lower the premiums. Auto insurance deductibles are usually between $250 and $1,500.

Whichever deductible you choose, you'll want to have it low enough that you can pay it in case you need to file a claim. Better yet, set aside that amount, so you'll always have it in case you need it. The last thing you need is a car you can’t use because you can’t afford the deductible required to file a claim so it can be fixed.

Some drivers of cars with little value decide to forgo comprehensive and collision insurance. This is especially true for vehicles more than ten years old that lost value. You'll want to run the numbers to see whether that makes sense for your situation. A good rule of thumb is:

  • If your car is less than 10 years old or it is worth more than $3,000, then you should get full coverage.
  • If your car is older and you wouldn’t spend your own money for mechanical repairs, then it may be time to skip comp and collision and instead start saving for a replacement vehicle.

Keep in mind though that thieves steal older vehicles more than newer vehicles, so keeping comprehensive insurance is a good idea unless the car isn't worth much. Some auto insurance companies offer you the option of carrying comprehensive without collision, others require both or neither.

 

Insuring a new, used car before you drive it

You'll need auto insurance before you drive off the lot or away from the curb of a private owner, so it's a good idea to contact your insurance company before making the purchase. That way, you can have that settled before you buy the car and then potentially forget and get into trouble with your insurance company – and finance company if you financed your used vehicle. You don’t want the finance company placing “forced” insurance on your vehicle at a very high cost. And make it clear if you are replacing a vehicle on your policy or adding an additional car to it, as that can make a difference on if there is immediate coverage with your current policy.

If you already own a vehicle, generally you can transfer your insurance to your new vehicle for at least a few days. It depends on your insurance company's policy and state laws on if there is coverage you’re your current policy and if so how soon you need a new insurance policy for your “new” car.

If you buy a vehicle over the weekend, you'll want to contact your insurance company before making the purchase.

If buying a vehicle from a private party and you’ll be making payments to the seller, to insure the car you will need to title it in your name. You need the seller to sign over the title to you and then put himself on the title as a lienholder, this allows you to title and insure the car and him to protect himself that you’ll pay for the car – or he can take legal action.

Don’t put your auto insurance on cruise control: Shop for the best rates

Whether you a buy a new or used car, shop around for car insurance at least every three years.

Insurance companies offer different discounts and devise rates in different ways, so you'll want to get at least three quotes to get the right deal for you. 

The rating factors that go into a used car are the same as a new car. The reason insurance costs generally are cheaper for used car is that the cost to replace it under your collision or comprehensive coverage is less.  Or if your car is fairly old, you may decide that comprehensive and collision aren’t needed so that reduces your overall premium paid.

Rating factors: VehicleValue, Repair, Claims & Type

Value - Whether new or used, the value of the vehicle is a big deal to insurers for your collision and comprehensive costs, since they may need to pay to replace it if ever is a total loss. 

Repairs – The cost of repairs is also looked at, so a used car with expensive newer tech will cost you more to insure than an older car with little or no tech. An old car that has hard to find parts and needs a specialist to repair it will again cost more to insure, maybe even more than a new car that has parts and repair specialists easily available. The more an insurer may have to pay out for repairs, the more you’ll pay in premiums.

Claims history for vehicle – If your insurance company has historically paid out a lot of claims for your model vehicle, it will cost more to insure. For instance, if your model vehicle is stolen more frequently you’ll normally pay more than a vehicle that is not as popular with thieves.

Type of vehicle – Same as with new vehicles, if the vehicle is a sports car it will normally cost more to insure than a minivan. If insurance companies find that certain cars are notorious for being driven fast and others slow and the claims and accident data agrees, those vehicles will cost more to insure.

Other rating factors – non-vehicle:

When looking for a used vehicle remember it’s not just the vehicle that insurance companies care about and rate you on.  Your will get better rates with:

  • A good driving record
  • Good credit score
  • Driving experience (the more years licensed the better)
  • Driving 10,000 or less miles per year
  • Having previous insurance coverage (a gap in coverage is not desirable, so if without a car for a few months, get a non-owner auto insurance policy)

Other factors looked at (where allowable) are age, marital status, gender and your location.

Though the price is important, there is more to auto insurance than getting the cheapest rates. Make sure you get quotes with the same level of coverage so you can get accurate, comparable quotes from each insurance company. You'll also want to read consumer reviews of the best car insurance companies to make sure you're choosing one with stellar customer and claims service.

Once you have the price and you've researched the company, you're ready to choose the right auto insurance for your used car.

 

 

 

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