Cars. MoTax. Buying a new car Buying a used car Is leasing a good idea? Auto insurance basics Cut down on how much gas you use and save

Transcription

1 MoTax Human Environmental Sciences missourifamilies.org/money/ Missouri Taxpayer Education Cars Buying a new car Buying a used car Is leasing a good idea? Auto insurance basics Cut down on how much gas you use and save

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3 MoTax Missouri Taxpayer Education Human Environmental Sciences missourifamilies.org/money/ Buying a new car It can be scary to buy a new car, especially if it is your first time. There is a lot to think about, so do plenty of research. Decide what car model and options you want, and how much you can spend. You ll feel less pressured into making an expensive decision at the showroom and more likely to get a better deal. Consider these suggestions: Check publications at a library, bookstore or the Internet that describe new car features and prices. You can find information on the dealer s costs for specific models and options. Shop around to get the best possible price by comparing models and prices in ads and at dealer showrooms. If you can, go to three different dealers. Plan to negotiate on price. Dealers sometimes give up some of their profit to make a sale sometimes as much as 10 to 20 percent. This is usually the difference between the manufacturer s suggested retail price (MSRP) and the invoice price that the dealer paid to the manufacturer. Make sure you reduce the price you offer by any cash-back offers the dealer has. You can order a new car if you don t see what you want on the dealer s lot. This may take more time, but cars on the lot may have options you don t want and that can raise the price. Dealers want to sell their current inventory quickly, so you may be able to negotiate a good deal if an instock car meets your needs. Learning the terms Negotiations often have a vocabulary of their own. Here are some terms you may hear when you re talking price. Invoice price what the manufacturer charged the dealer. It is often higher than the dealer s real cost because dealers get rebates, allowances, discounts and incentive awards from the manufacturer. The invoice price usually includes freight (also known as destination and delivery). If you re buying a car based on the invoice price (e.g., at invoice, $100 below invoice, 2 percent above invoice) and the freight is already included, make sure the dealer doesn t add it again to the sales contract. Base price the cost of the car without added options. This includes standard equipment and factory warranty. The price is printed on the Monroney sticker. Monroney sticker price shows the base price, the manufacturer-installed options with the manufacturer s suggested retail price, the manufacturer s transportation charge and the fuel economy (mileage). Federal law requires that this label may only be removed by the buyer of the vehicle. Dealer sticker price usually on an extra sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options. This price is negotiable and may include additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation and undercoating. Financing If you decide to finance your car, be aware that dealer financing, even if the dealer contacts lenders for you, may not be the best deal you can

4 Buying a new car get. Contact lenders yourself and compare the financing they offer with what the dealer offers. Offers vary, so shop around for the best deal, comparing the annual percentage rate (APR) of interest and the length of the loan. Try not to focus only on the monthly payment. The total amount you will pay depends on the price of the car you negotiate, the APR and the length of the loan. Dealers sometimes offer very low financing rates for specific cars or models, but won t negotiate on their price. You may have to make a large down payment to qualify. It might be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment. Ask lenders to tell you the total amount you will have to pay before you own the car. Before you sign a contract to buy or finance the car, consider all the terms of the financing and be sure you can afford it. Before you drive off the lot, get a copy of the contract that both you and the dealer have signed and make sure that all blanks are filled in. Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. It is rarely worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law and it has to be reflected in the APR if they make you buy it. Contact the Missouri attorney general s office by calling to learn about credit insurance requirements and regulations. Trading in your old car Discuss the possibility of a tradein only after you ve negotiated the best possible price and financing for your new car and after you ve researched the value of your old car. Check the library for reference books or magazines that can tell you how much it is worth. This information may help you get a better price from the dealer. It might take longer to sell your car yourself, but you generally get more money for it than if you trade it in. Service contracts Service contracts that you may buy on a new car provide for the repair of certain parts or problems. Manufacturers, dealers or independent companies offer these contracts and they may or may not provide more coverage than the manufacturer s warranty. Remember that a warranty is included in the price of the car while a service contract costs extra. Before deciding to purchase a service contract, consider these questions: What s the difference between the coverage under the warranty and the coverage under the extra service contract? What repairs are covered? Is routine maintenance covered? Who pays for the labor and parts? Who performs the repairs? Can repairs be made somewhere else? How long does the service contract last? What are the cancellation and refund policies? The Missouri attorney general s office has an excellent publication called All About Autos. It is available online at ago.mo.gov/ publications/allaboutautos.pdf. Call the Missouri attorney general s consumer protection hot line at to request a copy. To file a complaint The Federal Trade Commission (FTC) works for the consumer to prevent fraud, deceit and unfair business practices in the marketplace, and provides information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 877-FTC-HELP ( ); TTY: The FTC enters consumer complaints into a secure online database used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. By Brenda Procter, state specialist and instructor, MU Personal Financial Planning Extension Adapted from Buying A New Car, (Federal Trade Commission, April 2006), pubs/consumer/autos/aut11.shtm (accessed November 10, 2008).

5 MoTax Missouri Taxpayer Education Human Environmental Sciences missourifamilies.org/money/ Buying a used car Before you shop for a car, do your homework. Spending the time now can save you serious money later. Think about your driving habits, your needs and your budget. You can learn some things about car models, options and prices by reading both display and classified newspaper ads. There is a lot of information about used cars on the Internet. Enter used car in a search engine, and you ll find information on how to buy a used car, instructions for a prepurchase inspection and ads for cars that are for sale. If you don t have Internet service, a local librarian can probably help you. Libraries and bookstores have books that compare car models, options and costs, and they tell you about frequency-of-repair records, safety tests and mileage. Many of these books have details on the do s and don ts of buying a used car. Once you ve narrowed your car choices, research the frequency of repair and maintenance costs on the models in auto-related consumer magazines. The U.S. Department of Transportation s Vehicle Safety Hot line ( ) and Web site (odi.nhtsa.dot.gov) gives information on recalls. Payment You have two choices pay in full or pay over time. If you pay over time, the total cost you pay for the car is higher. That s because you re also paying for the cost of credit, which includes interest and other loan costs. Decide how much you can put down up front, your monthly payment, the length of the loan and ask about the annual percentage rate (APR) of interest. Usually, APRs are higher and loan periods are shorter on used cars than on new ones. Dealers and lenders offer a variety of loan terms and payment schedules. Shop around, compare offers and negotiate the best deal you can. Be cautious about ads that offer financing to first-time buyers or Before you shop for a car, do your homework. Spending the time now can save you serious money later. people with bad credit. These offers often require a big down payment and a high APR. If you finance with a high APR, you may be taking a big risk. If you decide to sell the car before the loan expires, the amount you receive from the sale may be far less than the amount you need to pay off the loan. With a high APR, if the car is repossessed or declared a total loss from an accident, you may still have to pay a large amount on the loan even after the proceeds from the sale of the car or the insurance payment are deducted. If your budget is tight, try to save cash for a less expensive car than you originally had in mind. If you do finance a used car, make sure you understand the following terms of the loan agreement before you sign anything. Exact price you re paying for the vehicle. Total amount of money you re financing.

6 Buying a used car Total finance charge (the dollar amount the credit will cost you). APR (a measure of the cost of credit, expressed as a yearly rate). Number and dollar amount of payments. Total sales price (the sum of the monthly payments plus the down payment). Dealer sales There are several places to get used cars, including franchise and independent dealers, rental car companies, leasing companies, and used car superstores. You can even buy a used car on the Internet. Ask friends, relatives and co-workers for recommendations. Call the Missouri attorney general s consumer protection hot line at or your Better Business Bureau (BBB) to find out if any unresolved complaints are on file about a particular dealer. Some dealers are attracting customers with no-haggle prices, factory-certified used cars and better warranties. Consider the dealer s reputation, not just the ads. The law does not require dealers to give used-car buyers a three-day right to cancel. The right to return the car in a few days for a refund exists only if the dealer grants this privilege to buyers. Dealers may describe the right to cancel as a cooling-off period, a money-back guarantee or a no-questions-asked return policy. Before you purchase from a dealer, ask about the dealer s return policy, get it in writing and read it carefully. The Federal Trade Commission s (FTC) Used Car Rule requires dealers to post a buyer s guide in every used car they offer for sale. This includes light-duty vans, lightduty trucks, demonstrators and program cars. Demonstrators are new cars that have not been owned, leased or used as rentals, but have been driven by dealer staff. Program cars are low-mileage, current-model-year vehicles returned from short-term leases or rentals. Buyer s guides do not have to be posted on motorcycles and most recreational vehicles. Anyone who sells fewer than six cars a year doesn t have to post a buyer s guide. The buyer s guide must tell you: Whether the vehicle is being sold as is or with a warranty. What percentage of the repair costs a dealer will pay under the warranty. That spoken promises are difficult to enforce. To get all promises in writing. To keep the buyer s guide for reference after the sale. The major mechanical and electrical systems on the car, including some of the major problems you should know. To ask to have the car inspected by an independent mechanic before you buy. When you buy a used car from a dealer, get the original buyer s guide that was posted in the vehicle or a copy. The guide must reflect any negotiated changes in warranty coverage. It also becomes part of your sales contract and overrides any other provisions. For example, if the buyer s guide says the car comes with a warranty and the contract says the car is sold as is, the dealer must give you the warranty described in the guide. As is - no warranty When the dealer offers a vehicle as is, the box next to the as is - no warranty disclosure on the buyer s guide must be checked. If the box is checked but the dealer promises to repair the vehicle or cancel the sale if you re not satisfied, make sure the promise is written on the buyer s guide. Otherwise, you may have a hard time getting the dealer to make good on his word. Implied warranties State laws hold dealers responsible if cars they sell don t meet reasonable quality standards. These obligations are called implied warranties unspoken, unwritten promises from the seller to the buyer. However, dealers in most states can use the words as is or with all faults in a written notice to buyers to eliminate implied warranties. There is no specified time period for implied warranties. Merchantability The most common type of implied warranty is the warranty of merchantability. The seller promises that the product offered for sale will do what it s supposed to. That a car will run is an example of a warranty

7 Buying a used car of merchantability. This promise applies to the basic functions of a car. It does not cover everything that could go wrong. Breakdowns and other problems after the sale don t prove the seller breached the warranty of merchantability. A breach occurs only if the buyer can prove that a defect existed at the time of sale. A problem that occurs after the sale may be the result of a defect that existed at the time of sale or not. As a result, a dealer s liability is judged case by case. Fitness for a particular purpose A warranty of fitness for a particular purpose applies when you buy a vehicle because the dealer says it is suitable for a particular use. For example, a dealer who suggests you buy a vehicle for hauling a trailer is promising that the vehicle can actually haul a trailer. If you have a written warranty that doesn t cover your problems, you may still have coverage through implied warranties. That s because when a dealer sells a vehicle with a written warranty or service contract, implied warranties are included automatically. The dealer can t deny this protection. Any limit on an implied warranty s time must be included on the written warranty. For as is sales, the implied warranties only disclosure should appear on the buyer s guide. A copy of the buyer s guide with the implied warranties only disclosure is available at ftc.gov/ bcp/edu/resources/forms/buyers.pdf. Dealers who offer a written warranty must complete the warranty section of the buyer s guide. Dealers may offer a full or limited warranty on all or some of a vehicle s systems or components. Most used car warranties are limited and their coverage varies, so compare and negotiate coverage. Warranty terms and conditions A full warranty includes the following terms and conditions: Anyone who owns the vehicle during the warranty period is entitled to warranty service. Warranty service will be provided free of charge, including such costs as removing and reinstalling a covered system. You have the choice of a replacement or a full refund if, after a reasonable number of tries, the dealer cannot repair the vehicle or a covered system. You only have to tell the dealer that warranty service is needed in order to get it, unless the dealer can prove that it is reasonable to require you to do more. If any of these statements don t apply, the warranty is limited. Full or limited warranties don t have to cover the entire vehicle. The dealer may specify that only certain systems are covered. Some parts or systems may be covered by a full warranty and others covered by a limited warranty. The dealer must check the appropriate box on the buyer s guide to show whether the warranty is full or limited. The dealer must include the following information in the warranty section: The percentage of the repair cost that the dealer will pay. For example, the dealer will pay 100 percent of the labor and 100 percent of the parts.... The specific parts and systems such as the frame, body or brake system that are covered by the warranty. The back of the buyer s guide lists the major systems where problems may occur. The warranty term for each covered system. For example, 30 days or 1,000 miles, whichever comes first. Whether there s a deductible and, if so, how much. A deductible is the part you must pay first before the warranty pays. You have the right to see a copy of the dealer s warranty before you buy. Review it carefully to find out what is covered. The warranty gives detailed information, such as how to get repairs for a covered system or part. It also tells who is legally responsible for fulfilling the terms of the warranty. If it s a third party, investigate their reputation and whether they re insured. Find out the name of the insurer and call to verify the information. Then check out the third-party company with your local Better Business Bureau. Make sure you take home a copy of the dealer s warranty document. Unexpired manufacturer s warranties If the manufacturer s warranty is still in effect, the dealer may include it in the systems covered/duration section of the buyer s guide. To be

8 Buying a used car sure the coverage transfers to you, ask the dealer for the car s warranty documents. Verify the information (e.g., what s covered, expiration date/ miles and necessary paperwork) by calling the manufacturer s zone office, which the dealer can give you. Make sure you have the vehicle identification number (VIN) when you call. Service contracts Like a warranty, a service contract provides repair and/or maintenance for a specific period. But warranties are included in the price of a product, while service contracts cost extra and are sold separately. To decide if you need a service contract, consider whether: The service contract duplicates warranty coverage or offers protection that begins after the warranty runs out. Does the service contract extend beyond the time you expect to own the car? If so, is the service contract transferable or is a shorter contract available? The vehicle is likely to need repairs and their potential costs. You can determine the value of a service contract by figuring whether the cost of repairs is likely to exceed the price of the contract. The service contract covers all parts and systems. Check out all claims carefully. For example, bumper to bumper coverage may not mean what you think. A deductible is required and, if so, the amount and terms. The contract covers incidental expenses, such as towing and rental car charges while your car is being serviced. Repairs and routine maintenance, such as oil changes, have to be done at the dealer. There s a cancellation and refund policy for the service contract, and whether there are cancellation fees. The dealer or company offering the service contract is reputable. Read the contract carefully to determine who is legally responsible for fulfilling the terms of the contract. Some dealers sell third-party service contracts. The dealer must check the appropriate box on the buyer s guide if they offer a service contract. If the guide doesn t include a service contract reference and you re interested in buying one, ask the salesperson about it. If you buy a service contract from the dealer within 90 days of buying a used vehicle, federal law prohibits the dealer from eliminating implied warranties on the systems covered in the contract. For example, if you buy a car as is, the car normally is not covered by implied warranties. But if you buy a service contract covering the engine, you automatically get implied warranties on the engine. Make sure you get written confirmation that your service contract is in effect. Spoken promises The buyer s guide cautions you not to rely on spoken promises. They are difficult to enforce because there may be no way a court can verify what was said. Get all promises written into the guide. Prepurchase independent inspection It s best to have any used car inspected by an independent mechanic before you buy it. For $100 or less, you ll get a general indication of the mechanical condition of the vehicle. An inspection is a good idea even if the car has been certified and inspected by the dealer, and is being sold with a warranty or service contract. A mechanical inspection is different from a safety inspection. Safety inspections focus on conditions that make a car unsafe to drive. They are not designed to determine the overall reliability or mechanical condition of a vehicle. To find a prepurchase inspection facility, check your Yellow Pages under automotive diagnostic service or ask friends, relatives and co-workers for referrals. Look for facilities that display certifications like an Automotive Service Excellence (ASE) seal, which means that some or all of the technicians meet basic standards of knowledge and competence in specific areas. Make sure the certifications are up-to-date and remember that certification alone doesn t guarantee good or honest work. Check with the Missouri attorney general s office at to find out whether there s a record of complaints about particular facilities. There are no standard operating procedures for prepurchase inspections. Ask what the inspection includes, how long it takes and how

9 Buying a used car much it costs get that in writing. If the dealer won t let you take the car off the lot because of insurance restrictions, look for a mobile inspection service to go to the dealer. If you cannot find one, ask the dealer to have the car inspected at a facility you choose. You will have to pay the inspection fee, but it s probably worth it for peace of mind. Ask the pre-inspection mechanic for a written report with cost estimates for all necessary repairs. Be sure the report includes the vehicle s make, model and VIN. Be sure you understand every item and ask the mechanic if you don t. If you make a purchase offer to the dealer after the inspection, you can use the estimated repair costs to negotiate the price of the vehicle. Vehicle systems The buyer s guide lists a vehicle s 14 major systems and some serious problems that each one could have. This list can help you and your mechanic assess the mechanical condition of the vehicle. The list may also help you compare warranties offered on different cars or by different dealers. Dealer identification and consumer complaint information The back of the buyer s guide lists the name and address of the dealership. It also gives the name and telephone number of the person to contact if you have problems or complaints after the sale. Optional signature line The dealer may include a buyer s signature line at the bottom of the buyer s guide. If so, the following statement must be written or printed close to it: I hereby acknowledge receipt of the buyer s guide at the closing of this sale. Your signature means you received the buyer s guide at closing. It does not mean the dealer complied with the rule s other requirements, such as posting a buyer s guide in all the vehicles they offer for sale. Spanish-language sales If you buy a used car and the sales discussion is conducted in Spanish, you are entitled to see and keep a Spanish-language version of the buyer s guide with all the items described above. Private sales Instead of buying from a dealer, you can buy from an individual. You can find ads in newspapers, on bulletin boards or on a car. Buying from a private party is very different from buying a car from a dealer. Private sellers generally are not covered by the Used Car Rule and don t have to use the buyer s guide. However, you can use the guide s list of a vehicle s major systems as a shopping tool. You also can ask the seller if you can have the vehicle inspected by your mechanic. Private sales are not usually covered by implied warranties. That means a private sale probably will be on an as is basis, unless you get a purchase agreement with the seller that specifies terms. If you have a written contract, the seller must live up to the promises stated in the contract. The car also may be covered by a manufacturer s warranty or a separate service contract. Warranties and service contracts do not always transfer to buyers and other limits or costs may apply. Be sure to review any warranty or service contract to be sure it covers you. You may want to get a written agreement with the seller that the car must pass state inspections or you get your money back. Before you buy a used car Whether you buy a used car from a dealer, co-worker or neighbor, follow these tips to learn as much as you can about the car: Examine the car yourself using an inspection checklist. You can find a checklist in many of the magazine articles, books and Web sites that deal with buying a used car. Test drive the car under various road conditions on hills, highways and in stop-and-go traffic. Ask for the car s maintenance and repair record. If the owner doesn t have copies, contact the dealership or repair shop where most of the work was done. They may share their files with you. Talk to any previous owner, especially if the present owner is unfamiliar with the car s history. Have the car inspected by a mechanic you hire. Carfax maintains a nationwide database and can provide a detailed vehicle history report in seconds. Carfax is online at carfax.com.

10 Buying a used car All you have to do is enter a VIN. There is a charge for the report, but many dealers will provide a report on a particular car free of charge. You can also ask individual sellers to provide a Carfax report, but neither a dealer nor an individual is obligated to do so. If you have problems If you have a problem that you think is covered by a warranty or service contract, follow the instructions to get service. If you have a dispute with the seller, these are steps you can take to resolve it: Try to work it out. Talk with the salesperson or, if necessary, the owner of the dealership. Many problems can be resolved at this level. If you believe you re entitled to service but the dealer disagrees, don t stop there. If your warranty is backed by a manufacturer, contact the manufacturer s local representative. The local or zone representative is authorized to adjust and decide about warranty service and repairs to satisfy customers. Some manufacturers are willing to repair certain problems in specific models for free, even if the manufacturer s warranty does not cover the problem. Ask the manufacturer s zone representative or the service department of a dealership that sells your car model if your repair is covered. Contact the Missouri attorney general s consumer protection hot line at If none of these steps is successful, small claims court is an option. Here, you can resolve disputes involving small amounts of money, often without an attorney. The clerk of your local small claims court can tell you how to file a suit and the dollar limit. The Magnuson-Moss Warranty Act can be helpful. Under this federal law, you can sue based on breach of express warranties, implied warranties or a service contract. If successful, consumers can recover reasonable attorney fees and other court costs. A lawyer can advise you if this law applies. If you would like more information about buying a used car, the Missouri attorney general s office has an excellent publication called All About Autos. It is available online at ago.mo.gov/publications/ allaboutautos.pdf. Call the Missouri attorney general s consumer protection hot line at to request a copy. Check out these publications from the FTC (ftc.gov): Auto Service Contracts, Buying a New Car, Car Ads: Reading Between the Lines and Taking the Scare Out of Auto Repair. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace, and helps consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 877-FTC-HELP ( ); TTY: The FTC enters consumer complaints into a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. Brenda Procter, M.S., state specialist and instructor, MU Extension Adapted from Buying A Used Car (Federal Trade Commission, June 2008), pubs/consumer/autos/aut03.shtm (accessed November 12, 2008).

11 MoTax Missouri Taxpayer Education Human Environmental Sciences missourifamilies.org/money/ Is leasing a good idea? To lease or to buy? When you buy a car, you own it. When you lease, you pay to drive someone else s vehicle. Leasing can involve lower monthly payments than a loan. At the end of the lease, though, you have no ownership or equity in the car. Many dealers and other lessors offer vehicle leases. Before you decide whether to lease or buy, remember don t be dazzled by so-called deals. Ask questions, nail down the details, read the fine print and shop around. If you re thinking of leasing, the Federal Trade Commission offers these shopping tips: Shop as if you re buying a car. Negotiate all the lease terms, including the price of the vehicle. Lowering the lease price will help reduce your monthly payments. Get all the terms in writing. Learn the language of leasing. In a closed-end lease, you return the car at the end of the lease and walk away, but you re still usually responsible for certain end-of-lease charges, such as excess mileage, wear and tear, and disposition. In an open-end lease, you pay the difference between the value stated in your contract and the lessor s appraised value at the end of the lease. o Lease inception fees are payments you make before the lease starts. They may include a down payment, security deposit, acquisition fee, first month s payment, taxes and title fees. Ask for a list of all charges due at lease inception. You may be able to negotiate on the terms. o The capitalized cost is the price of the car for leasing purposes plus taxes and extra charges like service contracts and registration fees. o The capitalized cost reduction is similar to a down payment. If you re trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on. The trade-in credit may reduce your down payment or monthly payments. Ask whether extra charges will be assessed for excessive mileage, wear and tear, disposition and early termination, and find out the amount of these charges. Most leases allow you to drive 12,000 to 15,000 miles a year. If you put on more miles, expect a charge of 10 to 25 cents for each additional mile. You may think the ding in the door or coffee stains on the upholstery are normal wear and tear to the lessor, it may be significant damage. Check out penalties for an early return and expect to pay a substantial charge if you give the car up before the end of your lease. Make sure the manufacturer s warranty covers the entire lease term and the number of miles you re likely to drive. Consider gap insurance to cover the difference sometimes thousands of dollars between what you owe on the lease and what the car is worth if it s stolen or totaled in an accident. Before you sign the deal, take a copy of the contract home and review it carefully away from any dealer pressure. Be alert for any charges that were not disclosed at the dealership, like conveyance,

12 Is leasing a good idea? disposition and preparation fees. Federal law requires lessors to provide lease cost information before you sign the lease. Take a copy of the attached form to the dealer and ask them to complete it. Some dealers may be willing to provide the information during your shopping process. If the dealer declines, consider shopping elsewhere. For more information about buying or leasing a car, visit the FTC s Web site at ftc.gov/autos. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace, and helps consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 877-FTC-HELP ( ); TTY: The FTC enters consumer complaints into a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. By Brenda Procter, M.S., state specialist and instructor, MU Extension Adapted from Look Before You Lease, (Federal Trade Commission, May 2003), bcp/conline/pubs/alerts/lease.shtm (accessed November 14, 2008).

13 MoTax Missouri Taxpayer Education Human Environmental Sciences missourifamilies.org/money/ Auto insurance basics By Brenda Procter, M.S., state specialist and instructor, MU Extension Automobile insurance protects you against having to pay large sums of money if you injure someone or cause damage to their property because of a car accident that is your fault. If an uninsured motorist causes an accident involving your car, insurance can cover costs of your injuries and injuries of passengers. Insurance can also protect against theft or physical damage to your car that is caused by collision, fire, windstorm or hail. There are few types of insurance that are required by law auto liability coverage is one of them. Other types of auto coverage are optional, but in Missouri, if you own or operate a motor vehicle, it must have at least the following liability coverage: $25,000 per person for injuries you cause to another person or vehicle $50,000 per accident for injuries you cause to one or more persons $10,000 per accident for property damage you cause to someone else s property The law also requires uninsured motorist coverage of $25,000 for bodily injury per person and $50,000 for bodily injury per accident. It may also be a good idea to get underinsured motorists insurance. This will cover you if the person who causes an accident doesn t have enough coverage to pay all costs from injury to you or damage to your property. The Missouri Department of Revenue tracks drivers to make sure their liability policies stay in force. If you let your coverage lapse or expire, your vehicle registration can be suspended and you can lose your driver license. Before you decide how much automobile insurance to buy, think about what would happen if you caused an accident. How much property damage or loss can you afford out of your own pocket? What do you own that could be damaged or stolen? How much would it cost to replace it? If someone sues you because an accident is your fault, how can you pay legal costs and possible awards for damages? Depending on how you answer these questions, you may want more insurance than the minimum the law requires. In addition to basic liability coverage and uninsured motorists insurance, you can get protection through: Medical payment insurance (covers medical costs up to the limit stated in your policy; covers you and your family whether you are a rider, pedestrian or passenger in someone else s car; covers your passengers). Comprehensive insurance (covers damages to your car from fire, theft, explosion, windstorm, hail, vandalism, glass breakage, birds and animals). Collision insurance (pays for damages to your car during collision, no matter who is responsible). If you have an expensive car, consider purchasing both comprehensive and collision insurance to protect the cost of repair or replacement. If you have a loan on the car, your lender will probably require both comprehensive and collision coverage but they can t tell you who to buy it from. It pays to shop around. Your auto policy may provide protection for you when you are driving a rental car. If so, you do not need to purchase rental car insurance from the rental agency, so be sure to ask your own agent. If you do not own a car but sometimes rent one, you will need to purchase the coverage. It is possible to purchase a separate car renters policy, which might be a cheaper option if you rent often.

14 Auto insurance basics Finding the best agent Selecting the insurance agent or broker who s best for you takes a little homework and time. You want an agent to help you select the coverage you need, but you also want one who assists you in filing claims and making sure your claims are settled efficiently and fairly. A good agent or broker will: Spend time with you to explain your coverage and answer questions about your policy. Review your situation once a year and recommend any changes you need in coverage. Explain how your insurance premium rates are calculated. Suggest ways to save money on your auto insurance. Before you make a final decision about which broker or agent to use, interview at least three of them. Ask your friends and relatives about agents or brokers they have worked with and get their advice. Compare services from different agents. Insurance policy sections Auto insurance policies have some standard sections, including: Declarations (information about the buyer of the policy, the dollar amount of the policy, type of coverage, extent of coverage, cost of coverage, date and time coverage begins, and the date the policy expires). Insuring agreement (states what losses will be covered and provides for legal defense up to policy limits). Exclusions (the fine print says what the policy will not cover). Typical exclusions are intentional damage to your own car, damages caused while you used the car as a public or delivery vehicle and damages caused by a garage or parking lot attendant. Read this section closely and ask questions until you fully understand it. Conditions (rules and duties if there is a loss). Includes reporting the loss to the company as soon as possible, using care to prevent additional damage to the car, cooperating with the company, required paperwork to document loss, and providing the insurer with any documents related to lawsuits under your policy. Endorsements (form listing changes in coverage that are added to the policy, signed by a company official and attached to the policy). How insurance rates are set Insurance rates vary from company to company and from individual to individual. Try to check rates with at least three different companies. Rates depend on: The amount of coverage purchased and how many premium payments you make per year. The amount of the deductible (the higher the deductible, the lower the rate). Where you live and where the car is garaged. Whether the car is used in the city or on a farm. How the car is used and the number of miles put on it each year. The type and age of the car. The age, gender and marital status of the insured driver (men under 25 years old can pay two to three times more what men over 25 pay and rates are generally lower for married people). Your credit score. Some companies offer discounts for completing a driver training program, getting good grades, carpooling, driving fewer than a set number of miles in a year or insuring more than one car. The one thing that affects your rates most is your driving record. Every moving violation you get and every accident you cause means you may have to pay a higher premium or that your policy will be cancelled. Drive safely and insure yourself against the financial consequences in case the worst happens. Armed with information and a willingness to shop around and ask questions, you can find the best policy for you at the best price possible. For informational brochures on a variety of insurance topics, visit insurance.mo.gov/. For more information on auto insurance, go online to insurance.mo.gov/ consumer/auto/ Sources: Israelsen, C Personal and Family Finance class lectures at the University of Missouri, Columbia. Israelsen, C. and Weagley, R Personal and family finance workbook. 3rd ed. Dubuque, Iowa: Kendall/ Hunt Publishing Co. Kobliner, B Get a financial life: Personal finance in your twenties and thirties. 2nd ed. New York: Fireside. Missouri Department of Insurance. Consumer Guide to Automobile Insurance, consumer/auto/autobuy/

15 MoTax Missouri Taxpayer Education Human Environmental Sciences missourifamilies.org/money/ Cut down on how much gas you use and save With high gas prices, saving a little at the pump can add up to big savings. Here are some ideas for increasing your car s fuel efficiency, saving money and helping the environment. Walk or bike when you can The best way to save on gas is not to buy it. If you live in town, sometimes you can walk or ride a bike to where you want to go. Avoid traffic If possible, adjust your work schedule to work at off times so you don t get stuck in traffic and can use less fuel. Carpool You and a neighbor who work together can arrange to take turns driving or one of you can drive while the other helps out with gas. Use air conditioning less at slow speeds On short trips or at low speeds, air conditioners reduce gas mileage. Drive with your windows down or run the air at a low setting. Use air conditioning more at high speeds At high speeds, open windows create drag and reduce your gas mileage, so it s cheaper to use air conditioning on highways. Turn it off a few minutes before you get where you re going and let the fan circulate the cool air. Keep your car in good shape Cars in poor running condition use more gas. If you can come up with the money for a tune-up, it will pay for itself in better gas mileage. Clean or change the air filter Replacing or cleaning a clogged air filter can improve your car s gas mileage by as much as 10 percent. Clean the spark plugs Dirty spark plugs waste gas. Check your tires The wrong tire pressure wastes gas and is hard on tires. Use the recommended grade of motor oil Using the manufacturer s recommended grade of motor oil can improve your gas mileage by 1 to 2 percent. Look for motor oil that says energy conserving on the API performance symbol to be sure it contains friction-reducing additives. Use steel-belted radial tires Radial tires can increase gas mileage by up to 10 percent. Drive for fuel efficiency Aggressive driving (speeding, accelerating and braking too fast) can lower your gas mileage by 33 percent on the highway and by 5 percent around town. Drive the speed limit Gas mileage decreases rapidly at speeds more than 60 miles per hour. Each 5 miles per hour you drive past 60 is like paying an extra 10 cents per gallon for gas. Accelerate slowly A lead foot on the accelerator can cost you over time. It takes less gas if you accelerate to higher speeds gradually and methodically. Don t let your car idle too long Try not to idle your car engine. Idling gets 0 miles per gallon. It usually takes less gas to restart the car than to let it idle for more than two minutes. Use cruise control on highways Cruise control helps you maintain a constant speed and usually saves you money on gas. Don t top off the tank when you fill up Some of the gas may expand in the heat and overflow from the tank. Don t use a higher octane gas than you need Most cars are built to run on regular unleaded gas, so it s like burning money if you use a higher octane.

16 Cut down on how much gas you use and save Clean out the trunk You need a spare tire and an emergency kit in your trunk, but check to see if you re carrying extra weight you don t need. Remove the pet food, kitty litter, chains, school books and other extras from the trunk to save money. The more weight you haul, the more it costs. Buy a fuel efficient car if you can Fuel is a big part of the total cost of owning a car. A fuel efficient car can save you thousands of dollars over a few years. Even if the car costs a little more, the gas savings may pay for itself. Online sources: fueleconomy.gov Energy Information Administration eia.doe.gov/neic/experts/ contactexperts.htm AAA fuelcostcalculator.com and fuelgaugereport.com/moavg.asp Veretto, Pat. Frugal Living: More Ways to Save Gas. frugalliving.about.com/cs/ savinggas/a/savegas_2.htm Willis, Gerri tips: Saving money on your car. cnn.com/2004/04/07/pf/saving/ willis_tips/ By Brenda Procter, M.S., state specialist and instructor, MU Extension Adapted from Reduce Your Gasoline Consumption and Save by Sandra Huston, Ph.D., former specialist, MU Personal Financial Planning State Extension