Now that the holiday season has mostly wrapped up and the new year is rolling into high gear, you might be thinking about different goals you’d like to get started on. If you’re thinking about a new car, you may be curious about how much a car costs, especially since prices are up for used and new vehicles. But what other costs are involved with owning a vehicle? Knowing these costs can set you up for the rest of your year, since you’ll be able to budget those expenses ahead of time, instead of as they happen.
Monthly costs associated with car payments
Purchase price and financing
The most obvious components of a car payment are your purchase price and the cost of financing. The higher each of these payment parts are, the higher your payment will be, so when you’re shopping for a new car, it could be worth saving up for a large down payment to keep that car payment from getting out of control. Plus, lenders might look favorably on your down payment size and you may end up with a lower rate because of it.
Since your interest rate will determine your finance charge, which is essentially the cost – in dollars and cents – of your loan, you should be aware of how much the loan will cost you, as that also contributes to your car payment.
Government and administrative fees also play into the initial cost of financing as well. Think about taxes, title and licensing fees when you’re trying to wrap your head around what these will cost. The dealership will typically charge an administrative fee, although many of those fees are capped by states, and the lender could charge a fee for processing the loan on top of the interest rate. The state and local governments usually have taxes or fees that also get added into your loan amount and can also increase your car payment and your cost to own the car, as these items can be bundled together into the final loan amount.
Insurance costs
Insurance costs can also increase the cost of car ownership. Fortunately, there’s a wide selection of vehicle insurers to pick from, depending on your area, and that can help serve to lower insurance costs as companies compete for your business. But one way or another, you’ll likely have an insurance cost that feeds into your cost of owning your car, and you should consider it when you’re determining how much vehicle you’d like to purchase.
Gas
Gas prices have recently lowered, but if you plan to drive an internal combustion vehicle, you’ll have to put gas in it to get it around town. That increases your cost of ownership as well. You can choose an electric vehicle instead of a more traditional one, and that could improve your fuel cost, but it could also increase your purchase price, as many electrics are still fairly pricey.
If you’re worried that gas costs may fluctuate over the course of your loan term, you might try out a more gas-efficient vehicle or a hybrid vehicle. Hybrid vehicles can help keep your gas costs down, as they rely on both gas and electric power to keep you moving, while some of the more gas-efficient vehicles on the market have technologies that turn your vehicle off if you’re at a stoplight, and then turn them back on once you’ve hit the gas pedal.
Vehicle maintenance and repairs
Unfortunately, machines and technology sometimes break down. All machines need maintenance. These will translate to cost for you, if you buy a vehicle. Dealerships have products you can purchase that can help offset costs of costly repairs for an up-front cost in the form of a warranty or vehicle maintenance plan. There are many products available to purchase, so it’s best to talk it over with your dealer and think carefully about what you choose to purchase. But some of these products can help if your vehicle were to break down, or they can help you keep up with maintenance on your car.
Should you choose to purchase products to offset future costs, or if you choose to repair the vehicle if or when it breaks on your own, the cost could still affect your total cost of ownership of that vehicle.
Other common expenses to consider
While insurance and gas are costs of owning the car that might not be as obvious as your car payment, other costs you might not consider can pop up from time to time.
Registration
Getting your vehicle registered with the state is an important civic responsibility, but it also has a cost associated with it. While the cost might not be very high (depending on which state you live in), it’s an annual cost, generally speaking. Even though the cost likely won’t fluctuate much over the life of the vehicle, you’ll still be responsible for that cost every year you own that vehicle.
Depreciation
Depreciation affects nearly every vehicle manufactured. Many people, while they might know this, may not associate it with a cost related to owning a car. But, once your current vehicle is near the point you want to trade it in or sell it, depreciation could rear its head at you and prove your car is worth less than you were hoping it would be.
Depreciation is the decline in value your vehicle will see over time. Some cars depreciate faster than other cars, so if you like swapping cars every few years, you might want to consider a vehicle with a more stable value. Or, if you rarely trade your car in, depreciation might come as a shock. But it has the potential to impact your next car loan, even if it isn’t likely to affect your current one when you newly purchase it.
How to save on your car costs
While vehicles can be expensive, if you’re focused and disciplined in your spending, you might be able to offset several of these costs, as mentioned previously.
- Make sure you’re doing your due diligence when selecting your vehicle.
- Pick one that’s not too costly for your budget, and consider a car that maintains its value over time.
- Shop for insurance.
- You may not want to just choose the vehicle insurer you’ve always used, unless they’re the best value in your estimation.
- Don’t go crazy with extras.
- Many options and extra features are neat, but they can raise the cost significantly without adding much monetary value, as those features are likely to be outdated at the end of your loan cycle.
If you’re looking to shop for vehicles, you might consider getting pre-qualified with Drive®. You can get real rates in about two minutes, and it won’t impact your credit score. Plus, if you’re pre-qualified, you can use our budget customizer to help you put together loan terms on real vehicles at dealerships in your area.
