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Whether you buy a new or used car, you'll need car insurance before you can legally drive your new ride. If you're taking out a new insurance policy, your premium could depend on numerous factors, including your age, location and the car itself.
It's often cheaper to insure a used car than a brand new one, but not always. Here's a breakdown of when and why insurance is cheaper for used vehicles and when it's not.
Is There a Difference Between New vs. Used Car Insurance?
Auto insurance companies don't have distinct "new car insurance" and "used car insurance," so there's really no difference between them. You still have access to the same types of coverage, such as liability, comprehensive and collision coverage, no matter your car's age.
However, the age of your car and its depreciation may factor into whether you want to carry comprehensive and collision insurance and the amount you'll pay for those coverages. Age doesn't weigh as heavily when considering standard coverages such as liability, uninusured motorist (UM) and personal injury protection (PIP).
Learn more >> Is It Cheaper to Buy a New Car or a Used Car?
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Is It Cheaper to Insure a New or Used Car?
It's often cheaper to insure a used car for a few reasons.
- Cost of replacement: Used cars are usually worth less than new cars, so the maximum amount your insurer would have to pay after an accident would be less than for a newer model.
- Repair costs: Parts and repairs are typically less costly with older, used cars.
- Potential to drop coverage: If you own your car outright, you may opt out of comprehensive and collision insurance to lower your premiums.
- Older technology: The technology in used cars may not be as advanced as what you'll find in newer cars. As a result, premiums on newer cars may be higher to compensate for more expensive repair and replacement costs. But if your car has eligible, factory-installed anti-lock brakes, anti-theft devices and passive restraint equipment, you might reap substantial savings on your policy costs.
While it's typically cheaper to insure used cars than new ones, that's not always the case, as age is merely one factor determining your insurance premiums. The make and model of your vehicle also play a large role in your insurance costs. Many used car models—especially luxury, sport or classic vehicles—cost more to insure than new ones.
For example, according to Insure.com analytics, you can insure a brand-new 2024 Honda HR-V for $1,673 per year, while premiums for a used 2015 Porsche 918 Spyder would run over three times that amount at $5,239 per year. Of course, this is an extreme example to hammer home the point: It isn't the car's age that matters as much as its make, model and value.
New vs. Used Car Coverage Levels
Deciding what coverage types and amounts you'll need will depend on your car itself and whether you own it outright or not.
If you drive a used car that's fully paid off, you may only need to get the minimum insurance amount mandated by your state. On the other hand, if you finance a new car with a loan or lease, you'll likely be required to carry full coverage insurance, including comprehensive and collision coverage and gap insurance.
Comprehensive and Collision Coverage
Comprehensive insurance covers damage to your car that happens when you're not driving it. For example, theft, vandalism and natural disasters are non-collision events that aren't covered by collision insurance. Similarly, collision insurance protects against damages from accidents with other vehicles or objects which aren't covered under your comprehensive policy.
Insurers typically package comprehensive and collision coverage together because of the way they complement each other and round out your vehicle's overall protection. Premiums for comprehensive and collision cost an average of $263 and $723 per year respectively.
Getting comprehensive and collision insurance may be a good idea if your car is worth more than a few thousand dollars, as the cost of repair and replacement would be higher than you'd save by forgoing these coverages. But, if your car's value is low, it may not make financial sense to carry full coverage insurance, especially if the car's value is less than your deductible and repair costs.
Gap Insurance
If you're financing your car, the lender or leasing company will probably want you to carry gap insurance, in addition to full coverage policies. Gap insurance protects you when the amount you owe on your car loan or lease is more than the car's actual cash value if it's stolen or totaled.
Without gap insurance, if your car is declared a total loss, your insurer would only cover up to the car's value at the time. If you're upside down on your loan—meaning you owe more than the car is worth—you'd be stuck paying the remaining difference on your loan balance.
Gap insurance covers that difference, so it's worth it if your car has depreciated faster than you can pay down the loan—which is common with newer cars. But whether you have a new or used car, you might benefit from gap insurance if you owe more than your car's current value.
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Discount Options for New vs. Used Cars
If you're in the market for a new car, you may want to ask your insurance company what discounts they offer for newer cars with safety features. Many auto insurance companies also offer discounts of around 10% for driving new cars, but the discount may only apply to vehicles that are one to three years old. Also, insurance savings from other vehicle safety features may be substantial enough to partially offset their cost.
For example, most car insurers offer discounts for vehicles with factory-installed anti-lock brakes and anti-theft technology. These two features could save you 10% or more on your comprehensive and collision coverage. Additionally, some insurers might knock 25% or more off premiums for your personal injury protection (PIP) or medical payments coverage if your car comes with eligible passive restraining equipment, such as air bags and seat belts.
How Do I Choose the Right Car Insurance?
Finding the right car insurance starts with finding the best combination of low premiums and coverage that meets your needs. A used car may come with cheaper insurance, but not always; remember that your car's age is just one factor insurers consider when setting your rates. The make and model of your car, as well as your location, driving record and age also figure into your premiums. And, depending on where you live, your insurer may even consider your credit history when calculating your premiums.
Here are a few tips to help you find coverage that meets your needs and saves money.
- Shop and compare car insurance companies. Every insurer follows its own criteria for calculating rates. Shopping and comparing car insurance rates from several carriers may help to ensure you get the lowest price for the coverage you need. You may find savings of hundreds or even thousands of dollars by comparing multiple insurance carrier rates.
- Ask about discounts. Before signing up for a policy, ask the insurer what discounts you qualify for. Most auto insurance companies offer several discounts to incentivize you to purchase a policy. You may qualify for discounts based on factors like your demographics, good driving habits and your car's safety features, among others.
- Consider your coverage needs. When comparing insurance rates, it's wise to compare the same insurance types and coverage amounts to get an accurate comparison. It may help to work with a service that provides quotes across many companies or an independent insurance broker who can help you dial in your needs and reach out to several insurers on your behalf to find the best deal. Remember, reducing your coverage amounts and increasing your deductible can help you get a lower rate.
- Know your state's and lender's minimum requirements. Nearly every state requires drivers to carry auto insurance, but coverage types and amounts may vary. Similarly, you probably need comprehensive and collision insurance if you finance your car. Check websites for your state's department of insurance or department of motor vehicles, or contact your insurance provider to verify the minimum coverage requirements. Similarly, your loan or lease agreement may contain information outlining the coverage types you must have.
Learn more >> How to Lower Your Car Insurance Costs
Frequently Asked Questions
The decision whether to buy a new or used car is a personal one that depends on your budget, preferences and lifestyle. A new car might be your best option if your top priorities are reliability, newer technology and lower financing rates. The average interest rate on a new auto loan in August 2024 was 7.1% compared to 11.3% rates for used cars, according to Edmunds. On the other hand, buying a used car might be the way to go if you want a lower purchase price than a new car.
When your car is roughly 10 years old, it's generally a good idea to drop full coverage and carry liability-only car insurance. This is especially true if your car is paid off and its market value is low. In that case, its replacement cost may not justify the expense of full coverage and dropping it could save $557 on average on premiums, according to the National Association of Insurance Commissioners (NAIC). But remember, without comprehensive and collision coverage, you'll be responsible for paying those repair and replacement costs upfront, so you may want to ensure you've got enough money in your emergency fund to cover them before opting out.
No, at least not directly. When you finance a car, the bank or financing company usually requires you to carry comprehensive or collision coverage as long as you're making payments.
But once your balance is zero, you may choose to cancel or reduce comprehensive and collision coverages and reduce your insurance bill.
The Bottom Line
Insurance is usually cheaper for used vehicles because it doesn't cost as much to repair and replace them as new cars. However, factors other than your vehicle's age, such as your car's make, model and safety technology, can impact your premium, so used car rates aren't always less expensive.
If you're looking for lower premiums, improving your credit may help. That's because some states allow insurers to consider a credit-based insurance score when determining your rates. If you live in one of these states, bolstering your credit may lead to savings. Get started by checking your credit report and score for free with Experian to get a current picture of your credit. Resolve any issues you discover in your reports and improve your credit score if necessary.