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Overlooked Costs When Buying a New Car

New CarBuying a new car can be an exciting time. You get to trade in your old ride for something fresh, hopefully with better gas mileage and more features than your old one had. If you spend a lot of time in your car, as many people do, it is a treat to be able to move up into a “new” vehicle.

Of course, buying a car is not a cheap thing to do, regardless if it’s new or used. That said, new cars are rather expensive, even if you aren’t splurging for a high-end model. You are probably looking a sticker price of $20,000 or more, depending on the model you are looking at. While that price alone is enough to make you want to start pinching your pennies, there are also other related expenses to having a new car that you need to take into consideration.

Buying a New Car Means Taxes

Just as with anything else you buy, taxes will be a significant part of your new car purchase. However, when you are talking about such an expensive item, taxes start to become much more significant as opposed to what you’d have on more common, everyday purchases. The taxes on your car purchase can easily be several thousand dollars so be sure to pay attention to that portion of the cost as well.

When you are trying to figure out how much car you can afford, don’t just look at the sticker price. You will also want to add in taxes and fees to get a better idea of how much money you will be spending on that new or used car.

Insurance

If you are trading in an old car to buy a new one, you already have auto insurance…well at least hopefully you do. :-) Insuring a newer, more valuable car is going to be more expensive than insuring your old one. Your premiums are sure to go up, and you should find out how much before you buy the car.

Contact your current insurance company and ask for a quote based on the car you are considering. This additional monthly expense needs to be taken into the bigger picture of the overall cost to own. Every time I have bought a new to me car one of the of the first things I do prior to making the final decision is calling my insurance provider to see what kind of an increase in cost we’ll be dealing with.

Maintenance

For drivers of older model cars, maintenance is something that might have fallen off your radar over the years. Once a car hits a certain mileage, some owners might start to neglect taking the vehicle in for service and just decide that they will buy a new car once the old one breaks down.

If this sounds like you, remember that you will need to perform regular maintenance on your new car to protect it for the long run. That means frequent oil changes and periodic service visits back to the dealer or mechanic. Add in this cost as well when deciding if you can afford the car. We actually save money specifically for taking care of car repairs. That way when we need to take our car into the shop we’re prepared to pay for the bill as opposed to scrambling for ways to pay for it.

Interest

Finally, assuming you are borrowing the money to purchase your car, you will be paying interest on the loan that you take out. With good credit, you should be able to get a relatively low percentage rate on your auto loan, especially in today’s interest rate climate. However, if you’re not able to secure a decent interest rate you will want to factor that expense into your overall purchasing decision. Of course, there’s always the option to buy the car straight out and not deal with the nasty loan but that’s just me. :-)

 

When was the last time you bought a new or used car? What expense caught you by surprise? Have you ever bought a car in cash before?

 

Photo courtesy of: NRMA Motoring

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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

22 comments

  1. We haven’t purchased a new/used car for several years, but I remember the first time we bought license plates for Greg’s Prius. It was very expensive and actually shocking. Fortunately, it goes down every year when we renew.
    Holly@ClubThrifty recently posted…Cash Money: $5,370 in May Income and Life UpdatesMy Profile

  2. In my experience maintenance costs are higher with older cars than never models. Parts wear out and need to be replaced on older vehicles. You just don’t know when the expenses will occur.

    I justify the occasional higher repair costs by comparing it to the regular car payment attached to a new car. Routine maintenance should be done no matter the age of the vehicle, and may be more important for older vehicles – it delays the time when you have to bite the bullet on a new car.
    Kevin @ Credit Bureau Insider recently posted…Can a Generic Credit Risk Score be Negative?My Profile

    • Good point Kevin. I guess I was meaning that there may be a point in time where you’re not focused on taking care of all the small things as you know you’ll be getting rid of it sooner rather than later. That said, I’m all about delaying having to make a purchase of a new to me car.
      John Schmoll recently posted…Overlooked Costs When Buying a New CarMy Profile

  3. I like this post because it focuses on things people often forget! It always amazing me when people buy the BMW or the Cadillac and then can’t afford the repairs. It’s just not right!

  4. I think the sales tax is a big thing people don’t think about and you have to pay it for new and used cars. If you assume a 7% sales tax on a $10,000 purchase, that works out to $700 which is a really large number to pay at once. Plus if you finance your car, you will have monthly taxes taken out as well so you need to make sure that any monthly number you agree to with your salesperson includes tax, otherwise your monthly payment could go up another $10-20 that certainly adds up over the year.
    Shannon @ Financially Blonde recently posted…Financial Fitness Steps from My KidMy Profile

  5. Sales tax is something that many people don’t think about. When we bought our Camaro, our sales tax was around $3,000, and that was even after we had a trade in and that discounted the amount we would have to pay towards taxes.

    One thing though, our car insurance actually went significantly down when we bought our two new cars. I’m not sure why, it’s really weird! We spent $50 on each of our two new cars ($100 total) each month for full coverage on both of us.
    Michelle recently posted…How To Use Credit Cards To Earn Cheap/Free VacationsMy Profile

    • Great point Michelle. Nebraska is one of the worst states in terms of taxes on cars and people will register them in bordering states to lower it and then they gripe when they get caught.

      Very cool it went down for you. Ours has gone down somewhat now that we’re working from home as we never drive. :)
      John Schmoll recently posted…Overlooked Costs When Buying a New CarMy Profile

  6. Thanks for the tips! We’re considering upgrading to a new car soon and might purchase new. The increased insurance is something we never considered.
    Thomas @ i need money ASAP! recently posted…The Best Ways To Earn Extra MoneyMy Profile

  7. I made the mistake of buying a brand new car when I landed my first “big boy” job. I didn’t count on all the other expenses that came with it. I also ended up paying way more than I anticipated.

    I don’t think I’ll ever buy a new car again. I’ll let somebody else take the initial hit and I’ll buy it from them a few years later. But for now, I’ll keep driving my paid-off car until it can’t go anymore.
    Aldo @ MDN recently posted…Spent: Looking For Change (Documentary)My Profile

  8. Maybe you can just roll all the expenses into a 97 month loan?
    Kim recently posted…6 Year Loan For a Honda Civic!My Profile

  9. Don’t forget property or excise taxes! In Connecticut, the property taxes on my old car were about $50 per year. On my new car, they are $450 per year. They will decline as the value of the car declines but it will be a while before I’m paying $50 per year again.
    Kristin @ Payment Free Life recently posted…Could you live with less stuff?My Profile

  10. One of the few things we NYC-ers DON’T have to worry about. Thank goodness.
    Stefanie @ The Broke and Beautiful Life recently posted…How Much Do You Need to Live In New York City?My Profile

  11. Repair costs are also something to consider as well. With blind spot monitoring, replacing your side view mirror is much more expensive than in the past. Same with back up cameras in the rear of the car and the new high power headlights.
    Jon @ Money Smart Guides recently posted…Selling Your Old Cell Phone For CashMy Profile

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