You’ve thought about it long and hard, saved every penny you could, and now you’re ready to buy that car you’ve had your eye on.
Before you rush to the nearest car dealer to sign the paperwork, it’s a good idea to know what the extra and hidden costs will be—beyond the sticker price. You want to be sure you understand all the expenses surrounding your vehicle purchase before you buy. Here are some important things you should consider when gauging the cost associated with the car you have in mind.
One thing you can be sure of is that you should insure your vehicle. In fact, it’s required to legally operate a vehicle in most states. Many factors play a role in determining insurance premiums, such as the make and model of car, the year, and how much overall risk is involved in insuring it. But you can easily get a quote ahead of time for a car you have in mind. It’s a great way to predict what your costs are going to be on a monthly or bi-annual basis from here on out.
2) Gas Mileage
As gasoline prices fluctuate with the ebb and flow of the economic climate, it’s difficult to predict what gas is going to cost 3 or 4 months out from now. What you can predict is how much gas your newly purchased vehicle is going to consume on a daily basis, depending on your route. Factoring in your car’s consumption of gas, as well as best and worst case scenarios in terms of gas price changes, is a great step in anticipating its true cost to own.
On the other hand, having a fuel-efficient car could end up saving you money towards the cost of it. According to the U.S. Department of Energy, some states offer financial incentives like tax credits for electric and plug-in hybrids vehicles.
Let’s face it, all cars eventually begin to wear and tear. Keeping them safe to drive and in tip-top shape can mean shelling out a chunk of change for parts and labor when you least expect it—sometimes more, sometimes less. The origin and make of a particular car can make a big difference in the cost of fixing or replacing parts, so be sure to take that into consideration when picking out your new baby.
Then there are unexpected mechanical breakdowns not caused by typical wear and tear. You know, like that blown tire because of a pothole you didn’t see. Extended warranties can be dicey and typically result in you paying a lot of money for very little protection since they only cover a very limited number of parts. That’s why GEICO’s Mechanical Breakdown Insurance (available for new or leased cars that are less than 15 months old and with less than 15,000 miles) is a great way to guard yourself from a steep service bill because it covers all parts and systems, while you only get charged a small amount each policy period.
Depreciation is a decrease in value of your car due to wear, tear and time. A wise car shopper understands that the value of a car drops as soon as it’s purchased and driven off of the lot. If you’re looking forward to a good resale value later on down the road, just be aware that a new car will lose 15-20% of its value each year that you own it. Perhaps last year’s model is looking a little better now, after all.
Several hidden car-buying costs that can make or break the bank are woven into the finance charges. The difference between a low and high interest rate can really add up, especially over the course of five or six years. Interest rates can differ when you buy new vs. used and could even be affected by how economical the vehicle is, depending on the lender. If you play your cards right, come to the table with a good down payment, and find the best rate possible, you can end up saving yourself hundreds, if not thousands, every year on borrowed money for your next ride.
If you’re trading-in, be mindful that some dealerships charge a trade-in fee to process your used vehicle, although it never hurts to dispute it. Taxes, tags and title charges will all be factored into your total —and don’t forget, certain states impose a significantly higher tax than others.
The choice to buy or lease a car also plays a role in determining the true cost of ownership, as many lease agreements require higher liability limits—leading to higher insurance premiums. Leasing contracts also tend to include limitations on the number of miles you may drive, so if you think you might end up putting more miles on the vehicle than are outlined in the agreement, be ready to pay the charges for doing so. Be sure you understand the terms of your agreement in full before signing on the dotted line.
Be sure to explore other sections in GEICO Living to learn more tips on how to save in your day-to-day life.
By Steven Scott