Between insurance, maintenance, gas, and interest, the sticker price is just the beginning of what you’ll pay on any car—used or new. There’s no question that for most people, the car is their second biggest household expense—after housing costs like rent or mortgage. Much of what you pay depends on where you live, but no matter where that is, most people still pay more over the lifetime of the car than they spent to begin with. Think of the actual cost of the car as a down payment—you’ll be paying for that car the whole time you own it, whether you financed your purchase or not. Here’s a breakdown of the costs associated with owning a car.
The sticker price. This includes the manufacturer’s suggested retail, as well as costs of accessories and transport costs. This is usually the starting point of the consumer’s negotiation with a car salesman. He starts at the sticker price, the consumer starts with the invoice price, and it continues from there. Most of the time, unless you’re looking at an extremely trendy car that’s brand-new on the market and quite high-end, you won’t have to pay sticker if you do your homework and are willing to negotiate.
Taxes and tags. This charge is going to be tacked onto your car purchase, whether you like it or not. The price of both taxes and tags will vary depending on the state you live in. Generally, though, taxes are by far the more significant cost. Tags typically cost somewhere between $20 and $40, but could cost significantly more depending on where you live. Sales and use taxes often add hundreds or thousands of dollars to a purchase.
Financing charges. Not everyone finances their car purchases—but many of us do, and it’s definitely a significant cost of buying a car. Your interest percentage will be determined by your credit rating, and it’s often between 4% and 8%. It’s important to check out loan terms from several different financial institutions before hitting the showroom—the loan offered to you by the dealership will probably have a much higher interest rate than you could get at a bank or credit union. Dealerships often offer consumers higher rates than they qualify for, so watch out.
Insurance. Perhaps the biggest cost you’ll see every month—on top of your car payment—is your insurance cost. The price for insurance will depend on where you live, what kind of car you drive, and your driving record—as well as whether you opt to include collision. Typically, however, cities are more expensive to insure in than suburban and rural areas—and some cities are more expensive than others. Philadelphia and Detroit are among the priciest places to insure a car—with insurance costs often between $2,000 and $3,000 per year, or more.
Gas. Gas prices are only going up—and it’s not looking good for car owners. With gas prices fluctuating between $2 and $3 per gallon, don’t be surprised if it costs you $50 or so to fill up your gas tank if you have a big car—or around $30 for a smaller car. For many people, depending on where they live, their gas mileage, and how much they drive, gas can cost between $60 and $80 per month for a more fuel-efficient car, and $100 or more for a larger and less efficient model.
Maintenance. Oil changes, new tires, new headlights, yearly inspections…cars are expensive to maintain, no matter how you look at it. An oil change usually costs between $30 and $40, and you have to do it once every 3 to 6 months. New tires can be costly as well—a standard all-season tire can cost anywhere from $30 to $100 per tire, with higher prices for larger tires that fit trucks and SUV’s, and high-performance and winter tires.
Your state and emissions inspection will usually start between $30 and $50—and that’s only if they don’t find anything wrong with your car. Often, however, something will have to be replaced. This could be anything from a new belt or brake pads (typically $100 or under) to a whole new brake system or transmission, which could cost you hundreds or even thousands, if you’re really unlucky. There are also plenty of things that can break in the meantime and hit your wallet hard—electric windows can cost $500 each to replace, for example. Trust us, there are hundreds of ways your car can cost you money—just from simple wear and tear.
Fender-benders, dings and scrapes. Part of owning a car is watching it go from sleek and shiny to scraped-up. Those little dents and scratches in your car can be very costly to repair—hundreds of dollars, sometimes—because a mechanic has to take the entire metal panel out to repair a single little dent.
If somebody rear-ends you, your bumper may not look like it’s been damaged—it may not even have a scratch on it. But if you take it to a repair shop, they could tell you that the bumper’s been compromised—the bar underneath has been bent, or some such—and that’s a repair that could cost you over a thousand dollars, even if it looks undamaged. Of course, the other guy’s insurance should cover it, if they hit you. Better hope they have insurance…oh, and by the way, your insurance premiums may go up if you report an accident, even a small one like a fender-bender, and even if it wasn’t your fault.
Parking. If you live in an urban area, parking can be a big expense. Renting a spot in a garage can cost hundreds of dollars a month—close to $1,000 in a city like New York. Expect an apartment or town home with a garage to be extremely expensive in a city, compared to an identical home without a garage—those parking spaces are at a serious premium. Even if you don’t rent a garage or live in a place with one, you can still expect to pay parking fees. Permits to park your car on the street can cost as little as $15 per year, and leave you immune to tickets and meter-feeding in certain areas of your neighborhood. But you can still expect to get tickets elsewhere in the city. Those can cost anywhere from $20 to $80 for a parking violation, depending on where you live.
Depreciation. This often isn’t included in cost-analysis for car ownership, because many people don’t expect to sell their cars back to a dealership at some point. However, many of us do want to use our current cars as a trade-in when making our next purchase. If you buy new, expect your car to depreciate in value the minute you drive it off the lot. Generally, a new car can lose about 35% of its value in the first year. After the first three years, you’ll lose somewhere around 10% of your car’s value per year.
Tickets. Even if you’re an excellent driver, there’s still a chance you could get a ticket or citation—for anything from speeding to parking in the wrong place. Forget to take your car in for a yearly inspection on time, and you could be ticketed as much as $100 or more. Drive over the speed limit—just about everyone’s done this at some point—and you could be looking at a ticket worth hundreds of dollars.
With all these hidden costs, the forecast for your bank account looks pretty grim. But there are a few things you can do to save money over time when buying a car. Here are a few tips on how to cut down on yearly costs.
Question collision. When you buy auto insurance, you may not need collision coverage. Collision covers costs if you are in an accident, whereas comprehensive covers costs for other mishaps, such as theft, vandalism, and fire. Comprehensive is required in most states; collision isn’t. And if you have a low-value used car, it may be worth practically nothing to your insurer—meaning they’ll consider it totaled even if it gets into a minor scrape. Because of this, if your car is very used (100,000 miles or more), collision coverage may not be worth the money.
Look for cars with less expensive parts. Some cars have pricier parts than others. Before you buy a car, get a copy of the most current car-buying guide from Consumer Reports. It gives a very detailed breakdown of relative price of parts in just about all cars on the market. If you buy a car with less expensive parts, your repair and maintenance bills can be significantly reduced.
Don’t go to the dealership for repairs. The dealership’s repairs and maintenance will cost you more money than a local repair shop. Ask around for recommendations—never choose a repair shop without a recommendation if you can help it.
Research, research, research. Buying a car is a big investment—and you should do plenty of research before you walk into the dealership. When you go to buy a car, you should know the type of car you want—look in Consumer Reports for things like reliability over time, cost of parts, cost to insure, and gas mileage, and pick the car that’ll be the most economical while still fitting your needs.
Bring key information with you. When you head to the dealership, you should bring with you a copy of your credit report; online quotes on the car you’re looking for from Cars.com, InvoiceDealers, Yahoo!Autos, Edmunds.com, Autos.com, and Car.com; invoice pricing information from FightingChance.com; a pre-approved loan from your credit union or bank; the Blue-Book trade-in value, if it’s a used car; and an extended warranty quote from a site like Warranty Direct to compare to the dealership’s extended warranties. All of these are great negotiation tools.
Visit lots of dealerships before making your decision. Everything’s negotiable at a car dealership—and those who are unwilling to haggle risk paying a great deal more than they have to. Get the lowest deal you can on a car in a dealership, then walk—say you’re going to visit more dealerships in the area and see if they can beat that deal. Don’t listen to salespeople who say nobody in the area can beat their offer.
Your car should last you a long time, and get you where you need to be—without breaking the bank. Before you buy a car, be aware of the extra charges you’ll incur—and make sure your budget has room for all the monthly and unexpected costs that come up. With research, planning, and luck, you’ll have a car that’ll meet your needs and your budget for years to come.