12:52 17 February 2013
February is a great time to grab a bargain on a used car, as drivers looking for a shiny '13' number plate come March 1 will be trading in their older models now.
Buying a car, whether it's a flash new 13 plate or a bargain used model, can be exciting. However, it does come with some boring but necessary administration which, if you're not careful, can cost you more than it needs to.
So if you're in the market for a new set of wheels, here's a look at how to transfer your car insurance to your next car, and not pay more than you have to in the process.
Before you buy
You need to start thinking about insurance before you shake the dealer's hand, particularly if you're a younger driver, because you need to know how the new car will affect your premiums.
When you're browsing the forecourts it's important to take down the registration numbers of any cars you're particularly interested in, so that you can get quotes on insuring them. You might have found the car of your dreams, but it could turn into a nightmare if you were to part with the cash and later find out it's going to cost you a lot more for cover.
Call your insurer; tell them you're thinking about changing your vehicle and that you want to know how it would affect your premiums.
They'll take the registration number; confirm the make and model of the new vehicle and ask a few questions to see if your circumstances are the same as when you took out the cover.
If the car is more powerful or, as is likely, more valuable than your old car, the cost of your insurance may rise. There is also likely to be an administration fee, usually around £30 to pay to transfer the insurance to the new car.
I did this recently and was quoted a fee of £45 for the transfer and administration. If, initially, you paid for your cover outright, you can choose to pay the sum in one go or spread the cost over the remaining term of the cover.
If you pay for your car insurance in monthly instalments, you have the option of adding the sum to your policy and spreading the cost over the remainder of the policy. In my case, this amounted to an extra £4 a month. Of course you can also simply pay for the transfer and administration upfront if you prefer.
The administration fees for changing the vehicle on your policy should be set out in your insurer's terms and conditions.
Not your only option
Transferring your existing car insurance policy to the new car is not your only option. Alternatively, you could cancel the policy on your old car and set up a new policy for the new vehicle.
All insurance policies in the UK come with a 14-day 'cooling off' period, in which you can cancel without penalty. Once this period ends, you'll be charged a cancellation fee - which varies from one insurer to the next and will be detailed in the policy's terms and conditions.
Be aware that these cancellation fees are designed to make it disadvantageous to cancel your policy. Technically you could be entitled to a partial refund by leaving the contract early, but the cancellation fee could cancel any refund out.
Also, cancelling a policy, say, after nine months in order to set up a new policy elsewhere will mean losing nine months' worth of No Claims Bonus.
That said, it's worth running a quote over for the new car over on our car insurance channel because if you can get significantly cheaper cover with another provider, it may be more cost-effective to take the hit on the cancellation fee.
A word on gap insurance
If you're spending a substantial amount of money on a new vehicle, you might want to consider gap insurance.
If you were to buy a new car for £10,000 and write it off nine months later, your insurer would likely only pay out for the current market value of the vehicle, which could be £7,000 or less, depending on how the make and model depreciates in value.
Gap insurance makes up the shortfall between what your insurer pays out for the vehicle's current market value and the trade price you paid, allowing you to replace the written-off car with something similar to what you originally bought.
This might be a particularly worthwhile investment if you're buying a car on finance, or you've taken out a personal loan to buy your new wheels.
A quick search on MoneySupermarket's gap insurance channel returns a quote of £3.62 per month over 36 months for gap cover on a car with an invoice price of £10,000. Over three years this amounts to £130.32 and covers you for a maximum claim amount of £10,000.
Finally, if you're a superstitious sort and think that a 13 number plate is more likely to land you in an accident, the DVLA is offering you a way out.
For a starting fee of £250 you can buy a personalised number plate from the DVLA... though a rabbit's foot would be cheaper.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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