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Determining Your Family's Car Budget During the Pandemic.

The COVID-19 pandemic has caused chaos and confusion in our lives. Millions of people have lost their jobs; for many, the job losses are permanent. People are finding it difficult to manage their finances and are struggling to find ways through which they could cut down their expenses. There are many homes on sale because owners are no longer able to pay their mortgages, and lines at food banks are longer than ever.

If there ever was a time when a family had to save money, this is it. For most families, after their rent/mortgage, the second most essential monthly expense is their car lease payment and/or car insurance. During these trying times, it might be a good idea to re-evaluate your car budget and identify ways in which you could save some money.

Here are some tips.

  1. Get rid of the extra car: If one of the members of your household has lost their job because of the pandemic or if your overall income has declined and you have two cars, you may want to consider the option of selling one vehicle. However, this requires a great deal of thought because you may get your job back and may need to commute, but it is something that you should definitely consider. If you sell one car, you can lower your expenses as you will no longer need insurance, gas, registration, or maintenance.

  1. Regular maintenance: If you want your car to last for many years, it is vital to have it regularly serviced. Modern cars are much better both in terms of durability and road handling than vehicles that were made two decades ago. But you still need to have them maintained. People who maintain and take care of their cars generally have to spend less on maintenance and car repairs.

  1. Car Insurance: The biggest expense for a car is insurance. However, there are always deals and discounts available. You already have car insurance, but it's always a good idea to go online and compare car insurance rates. Today, this task has become much easier as you can get a quote within minutes from different providers and can compare monthly premiums. Many insurance companies also offer a 10-15% discount if you bundle your home and auto insurance. Some offer discounts if you are a member of a credit union, a health professional, a teacher, etc. Evaluate all these possibilities. At the same time, be a safe driver, and avoid speeding as this will lower the risk of accidents, decrease the wear and tear on the vehicle, and if you have a clean driving record for more than five years, lower your insurance premium as well.

  1. Downsize: If you are driving an expensive car and have very high monthly lease payments, you may want to consider downsizing to a less expensive vehicle. You can sell your car and buy one that fits your budget during this time of crisis. However, make sure you do your homework, evaluate the market value of your car, and determine if it's worth selling. Also, you need to find an alternate car, make sure it meets your needs.

  1. Refinancing: For people who are finding it difficult to make their monthly car payments during the pandemic, refinancing could be an option. Recently, interest rates have dropped significantly, and one may be able to get a loan at a much lower rate. If that does not work out, you can also extend the term of your car loan, which will lower the monthly payments. Again, this only makes sense when interest rates are low, so be vigilant about what’s happening in the market before you make a decision.

  1. Lease Swap: If you lease a car and your monthly payments are high, you can get someone else to take over your leasing contract. Some businesses offer this option. You can hand over your lease to someone who needs the car and can afford the payments. You will no longer have a car, but the money you save on your monthly lease payments may allow you to buy a smaller and less expensive vehicle.

  1. Revisit your coverage: Most insurance companies convince you to get comprehensive coverage when you initially get your insurance from them. This is important if you have a brand-new car or a vehicle, which is quite expensive. However, as the years pass, car values depreciate, and your vehicle is no longer “brand new.” If your car is old and beat up, there is no point in having collision coverage. You could always change your coverage and reduce your monthly premium. Call the insurance company and drop the comprehensive insurance and collision coverage. At the same time, ask your insurance company to increase your deductible. In general, when the deductible goes from $500 to $1,000, it can save you nearly $200 a year.

These are some general tips to tighten your car budget. All of them may not apply to you or your family. Still, the point is that during times of financial crisis, families must revisit their major expenses and identify opportunities where they can save.