It doesn’t matter if you’re buying a new or used car, it’s important to understand the financial impact.
It’s easy to focus on the sticker price and nothing else. And certainly, considering price and understanding what you can afford is a critical part of your planning.
However, before you sign on the dotted line, you should get familiar with the true cost of owning a car. There’s more to this than what you pay to drive the vehicle off the lot.
Here are some additional expenses to take into consideration when buying a car:
1. Interest on your loan
Some people are able to live out the dream of buying a car with cash, but this doesn’t hold true for most. Instead, you may rely on financing to make your purchase.
Unless you’re able to secure a zero percent loan (these do exist), you’ll find yourself paying interest each month.
Nerd Wallet has a car payment calculator, where you can plug in your car price, down payment, interest rate, and term. Not only does this spit out your monthly payment, but it also displays the total interest paid over the life of the loan.
2. Insurance costs
Regardless of where you live, you need to understand the car insurance requirements in your state.
Tip: NerdWallet has a handy table that shows minimum car insurance requirements by state.
There are many ways to save on the cost of car insurance, such as lowering your coverage, increasing your deductible, and taking advantage of discounts (such as good driver and multi-policy). Don’t hesitate to have a conversation with your insurance provider to make sure you get the most out of their product.
One of the biggest drawbacks of buying a car is depreciation. Even if you take great care of your car, it’s going to lose value over time.
Fortunately, there are a couple things you can do to fight back against depreciation:
- Purchase a used car, since these typically depreciate at a slower rate than newer vehicles.
- Purchase a car that is known to hold its value better than the competition.
The first point is self-explanatory, but the second one will take a bit of research on your behalf.
Every year, Kelley Blue Book shares its “Best Resale Value Awards” list. You can search by brand, overall top ten winners and category winners to find out which cars are more likely have to high trade-in or resale value.
Researching which cars tend to have the best reliability could also be helpful. The less time your car spends at the mechanic to fix bad parts, the better. Consumer Reports keeps an up-to-date Guide to Car Reliability that can help identify cars with a good record of long-term performance.
If you’re buying a used car, you can talk to a local mechanic. Often they will be willing to look at the car before you purchase it, much as you might get a new home inspected.
4. Fuel costs
You can use the U.S. Energy Information Administration website to see national and regional average gas prices. As of August 3, 2021 the national average cost of a gallon of gasoline is $3.015/gallon (regular).
Depending on how much you drive, it’s not out of the question to spend hundreds of dollars per month on fuel alone.
It’s important to consider this expense when buying a car, as fuel economy numbers greatly vary by model. If this is a determining factor for you, here’s a list of the most fuel-efficient vehicles.
5. Maintenance and car repairs
It goes without saying that you hope nothing goes wrong with your vehicle, but things happen and we all end up at the garage every now and then.
Even if you don’t run into any mechanical issues, you still have to pay for basic upkeep. This includes everything from tires to brakes to oil changes.
If you find yourself facing an expensive auto repair such as a catalytic converter or water pump replacement, you don’t want to wait around to take action.
The first thing you should do is see if it’s covered by an active warranty (either standard or extended) or by your insurance. Then, do be sure to do your research to find an auto mechanic you trust to give you a fair deal and a good repair.
So, how much does it cost to own a car?
The true answer is: it depends. In addition to your purchase (or lease) price, you need to understand a lot of things to budget wisely for your new vehicle, including:
- Interest rates. These can affect car loan payments and may vary based on your credit history, the length of the loan. and more.
- Insurance costs. These vary by state and are influenced by your driving history and a host of other factors.
- Depreciation. Your car’s long-term value will vary with the type of car you own (and how long you own it for).
- Fuel costs. These differ based on your mileage, how often and far you drive, and local gas prices.
- Maintenance and car repairs. These costs can vary based on your vehicle, where you get it serviced, how often you need your car serviced, and if a repair is covered by warranty or insurance.
When you’re considering a car purchase, it can be helpful to make a list of potential related expense. Customize your own list based on the vehicles you’re considering and be sure to assess if it fits your budget.
And if the time comes when you need money to pay for unexpected major repairs, consider a personal loan as one of your options.