4 tips for cutting the cost of car ownership

Kathryn Hawkins

Owning a car can be tough on your wallet. AAA’s “Your Driving Costs” study, released in April 2012, found that the owner of an average midsize sedan pays $8,946 a year for associated costs, including loan payments, gas, maintenance, tires and car insurance. That’s up nearly 2 percent from the previous year.

“The average driving cost for 2012 is up due to relatively large increases in fuel and tire costs, and more moderate increases in other areas,” John Nielsen, AAA's director of automotive engineering and repair, says in a statement. The study illustrated a cost increase in car insurance as well: Insurance costs for sedans rose by 3.4 percent to an average of $1,001 a year.

So what can you do to combat the rising costs of car ownership? Try these four tips.

1. Examine your coverage.

If you’re driving an older car, take a look at your policy to determine whether some of the protection you’re paying for are no longer warranted.

“If the actual cash value won’t net much, there are coverages you can drop or reduce,” says Amy Bach, executive director of consumer advocacy group United Policyholders.

For instance, it may not make financial sense to pay for collision coverage if you know that your car would sell for only a few thousand dollars. Likewise, if you have a $500 deductible but could afford to pay out of pocket for a $2,000 claim, you’re likely to save money in the long run if you raise your deductible.

You also may be able to save money on insurance through discounts; ask your agent whether you qualify. Some of the price breaks you may be eligible for include good-driver discounts, good-student discounts (for student drivers in your household), senior driver discounts and multiline discounts (for buying at least two policies through the same company).

"Once my husband turned 50, we joined AARP and got a big discount on car insurance through AARP," says Janine Adams, a professional organizer in St. Louis.

If you are a low-mileage driver, it might be worth considering a “pay by the mile” insurance plan, says Michael Calkins, manager of AAA's approved auto repair operation. Under this kind of plan, your insurer company will install a GPS device in your car to track your mileage, and adjust your insurance rates up or down based on your mileage and driving safety habits. One such program, Progressive’s Snapshot, offers potential savings of up to 30 percent. However, “if you’re uncomfortable with someone else monitoring your car usage, it may not be right for you,” Calkins says.

In any case, be sure to shop around for car insurance quotes. Take advantage of free online tools that let you compare insurance costs, or work with an independent agent who can help you evaluate policies from several insurers.

2. Trade in your car for a more cost-efficient model.

If you’re considering a vehicle switch, it’s a great time to do so.

The rate of depreciation for used vehicles has dropped by nearly 5 percent between 2011 and 2012, according to the AAA study, which means you’re likely to get a better price when selling your used car. By trading in an SUV for a small sedan, you can realize big savings. Driving 20,000 miles a year in an SUV will cost an estimated $12,830 a year, according to the study. The same mileage in a small sedan would add up to just $7,684.

Why the disparity? Small cars tend to be much more fuel-efficient than large ones, so you often can drive longer distances using far less gas. Additionally, smaller cars usually have lower vehicle replacement costs, which reduces insurance premiums.

“Generally, the more expensive the car, the more expensive it is to insure,” says Douglas Nadeau, a spokesman for State Farm.

However, it pays to look at a car’s safety rating, too. If you purchase a car that has received a poor safety review, that may counterbalance any insurance savings you’d otherwise gain, Nadeau says. To research your options, look up the models you’re considering at the U.S. Department of Transportation’s safercar.gov website.

3. Buy used instead of new.

If you want to trade in your car, you’ll save quite a bit by buying a model that’s several years old instead of springing for the newest, shiniest model.

“When you buy a new car, it loses a third of its value as soon as you drive off the lot,” AAA's Calkins says. “If you keep it for five to 10 years, it’s not that big an issue, but if you trade every two or three years, you’re substantially increasing your cost of ownership.”

4. Reduce your mileage.

Consider what changes you could make to your lifestyle that would allow you to drive less. Could you telecommute a couple of days a week or ride a bike to work instead of driving?

“When our son got his driver's license, instead of getting a third car, I started bicycling to work every day,” says Andrew Holtz, a health care journalist in Oregon. “For a while, we had four drivers in the house but managed with two vehicles, because I didn't need a car to get to work.”

State Farm's Nadeau says: “Consider joining a carpool or take alternate transportation when possible. Mileage reduction may help lower your premiums.”

In addition to lowering your insurance premium, driving less can cut down on depreciation, gas costs and maintenance expenses.

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