"Cars and Things" (stern0)
09/16/2015 at 05:28 • Filed to: None
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"Cars and Things" (stern0)
09/16/2015 at 05:28 • Filed to: None | 0
| 4 |
As we have seen to this point, first-time, new-car buyers (or lessees) have to run a gauntlet of confusing decisions including:
· Buying versus leasing
· Insurance options
· Financing options (applies to buying or leasing)
By and large, Millenials are opting to lease rather than buy. That Millenials are opting for leasing rather than buying makes sense. Because the bulk of Millenials are in the front end of their car-buying experience, 20 to 36, they are facing a number of issues that earlier generations may not have had to face.
For example, Millenials, because of the extremely high cost of education, are coming out of college with debt loads that their parents and grandparents never had to cope with. It is not unusual for a recent college grad to have more than $100,000 of debt. That is a huge chunk of change for a young person who may not even have a job to have to face the debt.
Imagine trying to pay off that debt load. Unless they have great jobs lined up, the odds that young people will have a great deal of disposable income with which to purchase new cars are little or none. If they have work at all, Millenials are swimming in a sea of red ink, and the last thing they think they need is a long-term new-car loan.
Frankly, they may not even be able to get the financing needed to buy a new car because of their debt load. Leasing, on the other hand, offers those Millenials a way out. If they have shown a record of responsible college loan repayment, as well as indicating they know how to handle their finances, Millenial car-buyers stand an excellent chance of obtaining a lease.
Not only is a lease a way for them to get needed transportation, but it is also a way to get that transport at a reasonable price, far less than the cost of a new-car loan. Recently, for example, carmakers like Hyundai and Kia have been showing new-car leases for as low as $99 per month, depending on the program. That’s quite an attraction and makes it easier for a Millenial to afford a new car.
Granted, they are not building equity in the car, but, other studies have shown that while they like new cars, Millenials seem to place less value on ownership and like the utility of leasing. A lease allows an early upgrade to a new, more upscale vehicle.
Yes, this does fly in the face of other studies showing Millenials as the champions of “alternative transportation,” such as ridesharing, bicycling and mass transportation but when you look at each “alternative” in the cold light of reason, you begin to see they are really not viable except as one- or two-shot deals over the short term.
So, with Millenials now in the market buying or leasing their first vehicles, they are now facing the same confusion that generations of car buyers have faced, the tangled web of insurance. We have already looked at two of the three-part triumvirate that you can call “basic” coverage. “Basic” Insurance consists of:
· !!!error: Indecipherable SUB-paragraph formatting!!!
· Comprehensive
· Collision
In the first two parts of this tip sheet, you learned about the insurance that seems as if it should be optional (in the realm of standard insurance, it often is, however, in cars it isn’t), but it is required, liability. Liability provides for basic damages to your car that aren’t accident-related.
Then there’s comprehensive, whose name suggests it is not optional, but it is. Comprehensive provides for accident-related loss and medical payments in the event of an accident. Comprehensive insurance has a partner or is usually partnered with collision insurance.
Although collision, like comprehensive seems as if it is required insurance, it isn’t. Again, like comprehensive insurance it is optional. The driving force in obtaining either comprehensive or, now, collision, is finance. If you finance a car loan through a manufacturer’s finance arm, a bank or a credit union, you will find that you are required to take comprehensive and collision coverage. Leasing, too, since you are usually making the lease through a manufacturer’s finance arm, requires comprehensive and collision, as well. (Some states do require collision, so be sure to check your state’s regulations.)
You might wonder how collision works. It is an interesting question. So, here’s a brief description of collision insurance and its coverage. Collision coverage protects you and your car in the event of an accident. You are paid for repair or replacement if your car:
· Hits another car
· Gets hit by another car
· Hits an object or person
Comprehensive fills in the gaps left by collision coverage. Where collision coverage pays for anything involving the driver or drivers, comprehensive covers for acts of god. Since it is optional, there are some buyers who, if they are not financing or leasing their vehicles, believe that they can leave collision out of the mix when it comes to their “basic” insurance package. That may be a little short-sighted. For example, if your car is four years old and has a value of $14,500, you would be wise to keep collision in the mix because your claim has a high bar to pass before your car is totaled.
TheRealBicycleBuck
> Cars and Things
09/16/2015 at 06:23 |
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I’m not sure why you are making this so complicated. It really is simple.
Liability - covers other people’s stuff when you hit it with your car. Most states require it, but the minimums are usually way too low. Hit one new f-150 and you will discover why.
Collision -covers your own vehicle when you crash into stuff, whether it is another car or a stationary object.
Comprehensive - covers your own vehicle when God takes a whack at it.
Uninsured or underinsured motorists - usually falls in with collision and covers your vehicle when the other guy caused the crash but doesn't have enough insurance to cover the damage. This keeps you from having to sue him.
jariten1781
> Cars and Things
09/16/2015 at 08:59 |
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“Liability provides for basic damages to your car that aren’t accident-related.”
Nope. Liability is for damages caused by your car to others.
Also student debt load has not significantly increased. 100k debt number is coming from private school numbers.
Average private school tuition in 1980: ~9500
In 2015: ~30000
9500 in 1980 dollars is ~27500 in 2015 dollars. It’s pretty in line with inflation. However, there is more means testing given to aid these days so students from higher income families are paying a lot more out of pocket than they would have in 1980, but lower income students are paying less.
Total average student debt is way lower than that anyway at ~25k.
Now,
total
debt for new grads has increased due to the easy availability of short term, high interest credit (aka credit cards) which wasn't really a thing available to them prior to the late 90s. That attitude is the major contributor to folks leasing (or financing) a new car when they have significant debt/income ratio rather than buying a cheap used one until they have their feet under them.
BrianGriffin thinks “reliable” is just a state of mind
> Cars and Things
09/16/2015 at 09:20 |
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As told to me by an insurance agent:
“You’re driving down the road and a deer runs in front of your car. You can either swerve and crash into a tree or stay straight and hit the deer.
Hit the deer.”
Comp is much more forgiving than collision.
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TheRealBicycleBuck
> jariten1781
09/16/2015 at 09:23 |
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“Liability provides for basic damages to your car that aren’t accident-related.”
Nope. Liability is for damages caused by your car to others.
I saw that too and assumed it was a typo. I suppose he will go back and correct it.