According to a new study by iSeeCars.com, an automotive data and research company based in Boston, color plays a huge role in determining a car’s retained value.
To conduct the study, iSeeCars.com analyzed more than 1.6 million used 3-year-old cars (model year 2013) of all colors sold between June 1, 2015 and June 30, 2016. It then calculated each cars’ depreciation over three years by comparing the average listing price to the average MSRP (adjusted for inflation) for each car color and body style/target market. Any colors with fewer than 1,000 cars, as well as colors and body styles/target market segments with fewer than 30 cars were excluded.
As iSeeCars found, the average car depreciated 29.8% over the first three years of ownership, while orange- and yellow-colored cars depreciated the least of any color (27.4% and 26.2% less than the average car, respectively). At the other end of the spectrum were beige- and gold-colored cars, which depreciated the most — 4.8% and 12.5% more than the average car, respectively.
You can see the average three-year depreciation rate for cars by color below.
Charts via iSeeCars.com
Apparently, popular car colors like white, gray and black depreciated closer to the average car. “Because buyers shopping for such colors have a lot more choices, sellers may not have as much pricing power,” Phong Ly, chief executive of iSeeCars.com, explained in a press release. Conversely, consumers with an orange, yellow or green car may have more luck because those are more unusual colors.
Interestingly, while the average 3-year-old car takes 43.9 days to sell, the average for orange cars is 44.1 days and 44.9 for green cars. “In fact,” according to the release, “cars of almost any colors except beige sell within 6 days of the average car.”
Need a Ride?
With new cars losing anywhere between $3,000 to $5,000 the moment they drive off the lot, it’s no wonder many people find buying a car to be such a hassle. Just think, if you’re financing the car with an auto loan, that depreciation could mean you’re suddenly “upside-down” on the loan, owing more than the car’s even worth.
Of course, there are ways to get around the problem. You can research online at sites like Kelley Blue Book and Edmunds, which offer free information on models, safety and prices, and you can comparison shop for cars in your price range. Once you’ve got the right car in mind, you can dig up its history online. (Just make sure to grab its VIN number beforehand.)
Remember, buying a car is one of the biggest purchases you’ll make, so take the time to do it right. It can take minutes to set your eyes on a set of wheels, but paying for it is a whole other story. Whether you choose to lease or finance, you’ll want to make sure your credit’s in tip-top condition before you apply, as this will determine what terms you may qualify for. You can view two of your credit scores, updated each month, for free on Credit.com.
If you’re single, a renter, out of work or haven’t owned a car in a while — even your perfect driving record won’t be enough to get a good auto insurance rate.
It’s no secret that auto insurers consider a lot more than just your driving record when they calculate your premium. New customers are routinely asked to provide personal details, such as whether they’re married or single, renters or homeowners, unemployed or employed, college- or high school-educated.
It is how you answer these personal questions — not your driving record — that can result in higher premiums, a consumer advocacy group argues in a new report.
In a study of five of the leading auto insurers in the U.S., the Consumer Federation of America found drivers with a good driving record pay 59% more — or $681 per year on average — when their answers to these personal questions point to a lower income status (e.g.: people who answer that they are single, out of work, or have only a high school education). The CFA has long studied how economic status can be tied to higher auto insurance premiums.
For this report, they used the online quote features at Geico, State Farm, Farmers, Progressive, and All State. They created four driver profiles to test — two men and two women, each pair including a high and low socioeconomic status — and requested quotes from each insurer in 15 major cities.
All four drivers shared characteristics in common. They each had a stellar driving record, with no prior accidents or traffic violations. They were each listed as 30 years old living at the same address in each city tested.
Where the two test groups (we’ll call them Group A and Group B, for simplicity’s sake) differed was in how they answered the personal questions on each quote request. In group A, one woman and one man were married homeowners with executive level jobs, a master’s degree and three years with the same insurance company. In group B, the man and woman were single renters with high school degrees, and neither had owned a car in the last six months.
When the insurance quotes rolled in, an obvious trend emerged: across the board, Group B drivers were hit with higher premiums. On average, Group B drivers were quoted an average annual premium of $1,825. On the other hand, the married, home-owning, college-educated drivers from group A were quoted $1,144 per year.
GEICO and Progressive turned out to be the most costly option for drivers in Group B, charging premiums that were 92 percent and 80 percent more expensive, respectively, than premiums for Group A. In one extreme case from the report, GEICO quoted a man living in Minneapolis, Minn. from Group B two and a half times as much as the man from Group A – $1,840 per year compared to $528. The difference between premiums GEICO quoted for a low-economic status and high-economic status woman in Minneapolis was even more staggering — $2,158 vs. $528, amounting to a 300% upcharge.
MagnifyMoney reached out to all five insurers included in this report for comment. Each declined to comment.
James Lynch, senior actuary for the Institute, which represents the interests of insurers in the U.S., said insurers use personal information like marital status and education for a simple reason: they are highly predictive of whether a potential customer will cost the insurer in the future.
“Driving record is an important factor but it’s not the only predictor,” he added, noting insurers use upwards of 20 different factors to assess rates.
Get the best auto insurance rate possible
Short of state regulator intervention, auto insurers will be able to assess risk in their customers however they see fit. It’s up to drivers to do their due diligence in order to get the best rate possible. Even then,
Start with your state’s insurance department website. Since insurance is regulated at the state level, Hunter recommends checking your state’s office of insurance website to find out what average premiums are like in your area. This website should also list a number of reputable insurers you can contact for quotes. Take those names and check them out on the National Association of Insurance Commission’s database, which maintains a history of service issues and complaints.
Never accept your first offer. Asking several different insurers for auto insurance quotes is an important yet often overlooked part of the shopping process. As the CFA found in this report (among others), premiums can vary widely by state by state and insurer by insurer.
Let your good driving speak for you. Some auto insurers today offer usage-based tracking technology that allows them to see just how often and how well (or, how poorly) you drive. This technology can be a boon to good drivers who have low annual mileage and aren’t hit with any traffic violations. You’ll likely qualify for insurance discounts. It is entirely optional to allow your insurers to track you, as it obviously requires you to forfeit some privacy while on the road.
Imagine your car insurance bill was based on specifically how many miles you drove in a month instead of a blanket estimate. This is exactly what the auto insurance startup, Metromile, is offering drivers in the seven states it currently serves — California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia and Washington.
How Metromile Works
Metromile, which launched in 2011, is a usage-based car insurance provider where policyholders pay based on how often they’re on the road. The provider sends policyholders a wireless device called Metromile Pulse that plugs into the car’s diagnostic port and reports how many miles the car is driven each trip. An app also pairs with the service and can tell drivers details about their car, like how to optimize gas usage and where their car is parked.
Each month, Metromile customers are charged a base rate of $30. From there, there’s a per-mile driven rate, which is calculated by standard insurance establishing factors (explained in more detail below). At the end of each month, the Metromile Pulse reports how many miles you drove, and that gets multiplied by your mileage rate. Consumers aren’t charged for any miles they drive past 150 miles per day (except in Washington, where the cutoff is 250 miles per day), and there is no limit on how much (or how little) you drive. According to a Metromile spokesperson, bills are likely to be different each month because of the variance of time spent driving, but “rates will not change within the 6-month period unless you request a change.”
Establishing Your Car Insurance Rate
Customers provide Metromile with some of the same information most insurers ask for when pricing out a policy.
“Just like other insurance companies, several factors are considered when creating customers unique base and per-mile rate,” the spokesperson said in an email. “These can include: driver age, credit history (state specific), type of vehicle, driver history, and length of prior insurance (state specific).”
When Shopping for Car Insurance
Remember, it’s important to read the terms and conditions of any insurance policy you are considering before signing up. You also may want to comparison shop to be sure you’ve found the best policy for you.
And whoever you opt to go with for car insurance, you should be aware that your credit score can influence your rate, depending on where you live.
“In every state except Hawaii, California and Massachusetts, credit impacts your car insurance rates,” Neil Richardson, an insurance agent and advisor for The Zebra, as well as a Credit.com contributor, said in an email. “Your credit and driving history combine to determine your ‘insurance score,’ which is what insurance companies use to determine your rates. The better the insurance score, the better the rate.”
[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law. Learn more about them here or call them at (844) 346-3296 for a free consultation.]
A captive consumer is someone who isn’t in a position to bargain and, in turn, could overpay. For example, a traveler purchasing Wi-Fi on an airplane is captive because there’s only one option and a pay TV subscriber is captive if there’s only one cable company in the area, or if it’s difficult to install a competitive satellite service.
Drivers facing car repairs are often captive, too. When your car breaks down and you have it towed to a repair shop, you don’t have a lot of options but to get it repaired. And, for most drivers, pulling into a car dealership shop for “regular” repairs can create almost the same situation. Few consumers are car-savvy enough to know if they really need new brake rotors or a transmission fluid flush, so they end up doing what they are told by the expert, and paying the bill.
Car repair shops routinely attract a high level of complaints at state and federal offices related to overcharging and “gotcha” methods. (Read this guide to find out 7 ways to avoid getting overcharged by your mechanic.) Auto mechanics may work on commission or at an hourly rate, which may incentivize them to perform unnecessary repairs that can turn $40 oil changes into $600 bills. Plus, repair shops have the advantage of using the “safety” tactic in their sales pitch (as in, “Well, you don’t have to change your brake pads, but they are below 50%. I would, to be safe.”)
Consumer Reports’ chief mechanic John Ibbotson puts it this way: “High scare equals high profit.”
It’s hard to give anti-gotcha advice in the face of safety warnings – I have no intention of suggesting that you do anything to make you or your family less safe. But it is possible to do that and avoid ripoffs.
It’s Not The Nickels & Dimes — It’s The Dollars
You’ll probably end up overpaying for a repair at some point in the life of your car. That’s not the end of the world. What’s important is to not get routinely ripped off, and discover that you’ve spent $1,000 or more year after year on repairs that may not be essential. AAA reports the average driver pays $766 per year on maintenance and repairs, which of course can vary based on the age of the car. But if you are spending more than that, ask yourself why. And remember, the nice service manager at your repair shop is in the sales business. If your oil changes routinely end up costing $500, you may want to consider breaking up with the shop.
The Medium Bills Are What Will Get You
Transmissions fail and engines give up the ghost. It happens. Major repair bills often have as much to do with bad luck as anything else, so I’m not going to dwell on them. This repair tech at Edmunds.com revealed that shops often don’t make that much money on big, expensive and complex jobs. Where the real financial win comes into play for them are on the medium-sized jobs that are easy and can be done quickly. They make money on brake jobs, engine flushes, and so on. Keep that in mind for your next visit to the mechanic and you’ll likely have more confidence as a consumer, giving you an advantage.
“Service advisors are wary of customers who look like they know what they’re doing,” the shop worker told Edmonds.com.
Just Say No
Repair shops may tell you your bill is about to balloon, and get your permission, usually with some friendly language like, “You should really get this taken care of now.” But do you really need that transmission flush? There’s a big difference between dealer recommended service and manufacturer recommended service. A good rule of thumb is to follow the later, which you can find in service manuals and on carmaker websites.
One of the most popular and lucrative gotchas at repair shops is the dreaded “diagnostic fee,” a service charge for establishing the problem with your vehicle. Sometimes it genuinely takes an hour or two to diagnose a repair problem. But Kristin Brocoff of CarMD.com said that it is also possible for techs to plug into the car’s computer and get a diagnosis in seconds.
“It takes less than two minutes for the service writer or tech to use a scan tool on your car,” Brocoff said. “If the problem ends up being something simple like a loose gas cap, most shops waive or discount the diagnostic fee, but some charge upwards of $100. Ask a lot of questions and know what tests they’re running on your car.”
If you want to run a test yourself and compare your results to what a service tech is telling you, you can purchase a OBD2 reader that can read the car’s computer diagnostic codes. It’s important to note that the codes they generate don’t always tell the whole story, and they can be misinterpreted.
Brake for Second Opinions
Car brake repairs range from simple and cheap (brake pad replacement) to the really expensive (rotor and even caliper replacement). It’s easy for shops to say you need the expensive work when you could get away with the cheaper job. They might even show you what looks like a terribly dirty, worn rotor. But rotors can be repaired (turned) instead of replaced, for example. If a shop tells you that you need a full brake replacement, go to another shop and get a second opinion. The variety of quotes you’ll receive for repairs like this can be eye-opening. (Last time I replaced my tires, I was told I needed $500 worth of repairs on my front brakes. A month later, they were fixed elsewhere for $200.)
Smell, Listen, Look, Feel
This leads to perhaps the most important piece of gotcha-fighting advice. You have a relationship with your car. Treat it like a friend, and it’ll do the same for you. Listen to it; look at it; smell it; feel it. Listen to the sounds it makes. Hear a sound like an airplane landing when you press on the brakes? Take it in before a cheap repair becomes and expensive repair. See a puddle stain in your parking spot? Get help. Smell something unusual when you turn it off? Open the hood and look around. Feel a drop in performance when you accelerate on a highway? Notice a drop in gas mileage? Take it in. The most important way to avoid overpaying is to avoid the captive consumer situation. A good rule of thumb: You want to drive to a repair shop, not get towed there. Avoid letting things go until the situation is dire, and it’s not really possible to get second opinion quotes.
Question Line Items
When Popular Mechanics interviewed an anonymous repair tech a few years ago, he shared that many shops add annoying tack-on fees like “shop supplies.” That means you might be getting charged $20 for a shop rag. Feel free to ask and challenge the shop on these charges. Doing so is fair and can put the shop on notice that you aren’t a pushover.
Use Online Tools for a Reality Check
Finally, there are plenty of clever tools now that can give you a rough idea of what repairs should cost in your area. Consumer Reports has one; So does RepairPal.com. They won’t be exact, but you’ll have a good idea if the quote you are getting is fair. Also keep in mind that if the quote is too low, ask questions to help make sure your shop isn’t planning a bait and switch.
Even if you do avoid a car repair gotcha, it’s important to have an emergency fund so a pricey repair doesn’t turn into unwanted debt. Having outstanding or large debts can hurt your credit score and you’ll want a strong score in the event that your car is damaged beyond repair and you need to get a new one. Having a good credit score may make it easier to get approved for an auto loan with an affordable interest rate. You can keep an eye on your credit score by viewing two of your credit scores for free each month on Credit.com.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
Lower gas prices equals more road traffic equals more car crashes equals more insurance claims equals higher premiums. That’s the not-so-short story of why your car insurance rates could go up this year, but let’s break it down.
Gas prices in 2015 were substantially lower than prices throughout both 2014 and 2013, according to AAA, and the new year is ringing in the lowest gas prices for this time of year since 2009.
That kind of money adds up, and consumers have taken notice: Forbes reports that the increase in miles driven on U.S. roads has been substantial, likely due in a large part to lower gas prices. Maine, for example, saw more drivers pass through their tolls in June and July of 2015 than they have ever seen. And increase in road traffic impacts many things, one of the most important being car crashes. The simple truth is that the greater abundance of cars on the road increases the occurrence of crashes, which generate more insurance claims.
The Auto Insurance Industry Is Losing Money
Official crash statistics take time to compile. However, while hard numbers about how many traffic crashes happened during 2015 isn’t yet available, we do have other indicators that 2015 was especially dangerous for drivers. According to Forbes, major auto insurance companies are bleeding money, reporting significant revenue decreases and even losses in underwriting profits from last year.
Some auto insurance companies are placing the blame for their loss in revenue on more claim payouts to customers because of more traffic crashes. Others say the increase in economic activity over the past couple of years has put more cars on the road, which has led to more car accidents and crashes.
What the Insurance Industry’s Losses Mean for Your Policy
Insurance companies must estimate risk and expenses: Insurers maintain complicated algorithms to help them determine how much different types of customers are likely to cost them. And, even though their data is based on a lot of past evidence and careful evaluation, adjustments sometimes need to be made — and, according to Forbes, at least one major insurer is planning them with more providers likely to follow suit. Fortunately, potential rate hikes won’t happen over night. Per Forbes:
The process of adjusting property and casualty insurance rates in the United States is heavily regulated. Insurers first need to submit a proposal for a rate change with each state’s Department of Insurance. This request needs to then be approved by the department — a step that can take several months.
Still, the math is simple: More drivers on the road leads to more crashes, which leads to increased insurance company payouts, which means less money for insurers, which they will likely make up for by ultimately increasing premiums for everyone. Ouch.
How to Avoid a Rate Hike
Whenever your car insurance policy is up for renewal, whether it’s been a bad year for the auto insurance industry or not, the absolute best thing you can do to keep your premium as low as possible and ensure you secure the coverage you need is to shop around. Comparing the different policies insurers have to offer, their prices and potential discounts, and even sharing the prices you’re offered at one company with a competitor can ensure you don’t overpay and aren’t a target for the questionable practice of price optimization.
Take a defensive driving course to lower rates by as much as 10%.
Consider bundling your auto insurance with other insurance policies you carry, like homeowners insurance.
Consider adjusting your deductible if you are quoted rates that exceed your budget. But don’t necessarily take the highest deductible/lowest premium combo. Instead, carefully consider how much you can afford to pay out of pocket should an emergency arise.
See if you might qualify for low mileage rate reductions or consider if usage-based insurance might be right for you.
Look into every discount you might qualify for (often insurers don’t offer them up without being asked). Options to look into include good student, recent graduate, age-based discounts, discount for married couples and discounts for veterans.