Costs of Buying a Car
So, you want to purchase your first car. Where do you start? Many people find the car they want and figure out the rest as they go. But is that really the best way to go about it? Lost in that scenario is the research and planning that should go into any major purchase, especially a car!
To help you in your preparation, we have outlined six major expenses that occur in the car buying (and owning) process. Some are obvious, whereas others you may not have thought about. Taking all of these into consideration will save you time, money, and stress in the long run!
1. The Actual Price of the Car
Undoubtedly, the number one cost consideration when purchasing a new vehicle is the actual price of the car. If you’re getting a loan to purchase your new vehicle, your fist step should be to find out how much you can afford to borrow. This will help you to narrow down which cars actually fit your budget. Getting pre-approved for your loan is an excellent way to start the process.
Once you know how much you can afford to spend, you can begin researching what cars are available in your price range. We offer assistance with our TrueCar buying service. This service will show you what others have paid for a similar vehicle, issue you a savings certificate, and save you time and money in the negotiation process.
- Another factor in the actual cost of the car is adding a warranty. If your chosen vehicle is eligible for a warranty and you decide to purchase it, financing it when doing the initial loan could save you money in the future.
General Rule of Thumb: To get the best price, be prepared when you walk into the dealership. Take your time to do your research before even stepping onto the lot.
2. Car Insurance
Car insurance is a key component of owning a car because it not only helps you cover your expenses in case of an accident, it is also required to legally drive in the state of Indiana. Car insurance rates vary depending on age, where you live, type of car, and driving habits. Contact your agent to get the most accurate rates.
Gas is another major cost factor in owning a car. If you’re purchasing a new car, determining your annual fuel cost is fairly easy. The EPA estimates this amount and provides this information on the window sticker of each new car. If you’re purchasing a used vehicle, you can look up estimated fuel costs here.
4. Registration + Plates
Often missed in the new car budgeting process is the cost to register and plate your vehicle. In the state of Indiana, registration and plates are determined by the year of the vehicle and the manufacturer’s original retail price. Click here to learn more about estimating these costs.
Whether you’re buying brand new, or “new to you,” you’ll want to budget for the cost of maintenance. Maintenance costs will vary depending on the age of the vehicle and the type of warranty you’ve purchased. However, some repairs won’t be covered by warranty and you’ll still need regular, preventative maintenance.
Preventative maintenance includes: tune-ups, oil changes, air filter replacements, new tires, and new brakes.
On average, budgeting $50-$100 per month (per vehicle) is a good starting point. Of course, this doesn’t mean that you’ll be spending that much every month, but having money set aside can be helpful, especially if a major repair needs made.
Finally, the hidden cost of car-ownership is depreciation. Depreciation is the decline in car value as a result of age and use. A new car’s value depreciates as soon as you drive it off the lot. While this is one cost you won’t notice right away, it will factor in when you’re ready to sell your car. You can minimize this hidden cost by researching depreciation values of different vehicles before purchasing and by performing routine maintenance as necessary after purchasing.
Credit + Responsibility
Establishing a good credit history is important to your future borrowing ability. Your first car loan is often your first credit obligation, so handling it properly is essential. On-time payments are vital to a good credit rating and future loans from the lender. Even one late payment appearing on your credit report can have a major negative impact on your credit score.
It is important to remember that if your car breaks down or major repairs are needed, the commitment for payments towards your loan does not stop. The loan payments are not linked to the condition of the vehicle. This is why it is very important to determine the cost of potential repairs and budget for them accordingly. You don’t want to be in a position to have to choose between making car payments or car repairs. Lack of planning can have a detrimental impact on your credit history.
To learn more about credit reports and what factors into your credit score, view our Understanding Your Credit Report Quick Guide.
Have you taken the time to educate yourself about the responsibilities (financial and other) that come with owning a car? It's time to test your knowledge!
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