Owning a car doesn’t come cheap – the average car insurance annual premium was $1,323 last year. For students and graduates just starting their careers, that’s a big chunk of change. Keeping up with car insurance costs can make it difficult to pay off debt such as student loans and can prevent individuals from driving cars at all.
But there’s a new option for drivers who want to cut their insurance costs. Pay-as-you-go car insurance is based on your driving habits and can dramatically reduce your costs. Below, find out if pay-per-mile car insurance is for you.
What is pay-as-you-go car insurance?
Pay-as-you-go car insurance companies offer solutions for car owners who drive less than most people. MetroMile, one pay-per-mile insurance startup, estimates that 65 percent of drivers overpay to subsidize high-mileage drivers with traditional insurance companies. Premiums based on your actual usage change that model.
Sometimes also called telematics insurance, pay-as-you-go car insurance uses a small tracking device that the company installs in your vehicle. The device tracks exactly how many miles you drive each day. The fewer miles you drive, the lower your premiums will be.
Companies like MetroMile are using this approach because the fewer miles you drive, the less likely you are to be in an accident and make a claim.
Advantages of usage-based insurance
Pay-as-you-go car insurance gives the individual more control. Traditional companies base your premiums on factors such as your age, marital status, and education. Per-mile coverage bases it on the personal user’s driving habits, so you have more control over the cost.
With pay-as-you-go car insurance, you can view the telematics data yourself and monitor how many miles you’re racking up. If your mileage is up one month and money is tight, you can rein in your driving and use other options, such as public transit or carpooling, to reduce your cost.
The potential savings are substantial. MetroMile says drivers who switch save an average of $500 a year. But if you have a small commute and drive about 2,500 miles annually, your savings can be as high as $650 a year.
Drawbacks to telematics coverage
If you switch to pay-per-mile car insurance, there can be some fees involved. Some insurers charge you to install the tracking device, which you would not have with a traditional company.
Pay-as-you-go premiums can vary from month to month. Many companies charge you a base rate each month, plus an additional per-mile rate depending on your driving habits. Because it can fluctuate, you need to allow for changes in your monthly budget.
Usage-based coverage is not for everyone. The average driver logs over 13,000 miles on the road a year. If you meet or exceed that average, pay-as-you-go car insurance will likely not result in savings for you. In fact, you could end up paying more.
Deciding if pay-as-you-go coverage is for you
Drivers who fall into the high-risk insurance category, such as young drivers or inexperienced drivers, can often save by switching to pay-per-mile car insurance policies. Regardless of your age or driver status, if you don’t drive very much, switching to usage-based coverage can save you a lot of money.
To figure out if switching to a telematics policy makes sense, calculate how many miles you drive in a typical year. Track your mileage for a month, then multiply the number by 12. For example, if you drive 600 miles a month, you’ll likely log about 7,200 miles a year.
Most pay-as-you-go car insurance companies charge between three and four cents a mile. If you multiply your annual 7,200 mileage by the higher per-mile cost – four cents – you can expect a mileage charge of just $288 for the year.
But that’s on top of your base rate. MetroMile, for example, charges $30 a month (that’s $360 a year) as a fixed rate. To find your total insurance cost, add your annual base rate to your mileage charge. In the example above, that totals $648 – approximately half the national average premium cost for traditional coverage.
Other ways to get affordable car insurance
If you log a lot of driving miles or usage-based insurance is not yet available in your area, there are still ways to reduce your insurance premiums:
- Shop around: Experts recommend shopping for insurance every six months. A lot of factors can change, such as your credit score, so comparison shopping can help you get the best rate.
- Raise your deductible: If your monthly premium is too expensive, consider raising your deductible. You’ll pay more out of pocket if you need repairs, but increasing your deductible can cut your monthly expenses.
- Check for discounts: Check with your insurance company to ensure any discounts you may be eligible for are applied. Some offer good-student discounts or employer discounts which can reduce your rate.
Managing your costs
If you need your car for daily life or work responsibilities, car insurance is a necessary expense. While it can get pricey, options like pay-as-you-go car insurance can help you reduce your monthly bill.
For more information about car insurance, check out 9 essential tips to find the most affordable coverage.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|