If you are in the process of shopping for a new car or truck, then you should be aware of something we call "The True Cost of Ownership." Basically, this refers to the fact that far too many Americans jump into a new vehicle purchase without realizing the full extent of vehicle ownership costs -- a matrix of small details that often amount to unanticipated, wallet-draining costs. To help you more readily anticipate how much your next new vehicle will cost to own and maintain, please read below.
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Payments (The Obvious): obviously, if you are financing a new car, then you will have monthly payments to attend to. How high these are depends on the amount that's finance, your interest rate, and your down payment. Now, the issue is not that people forget to keep their payments in mind; it's that they overextend themselves by self-selecting a payment range that is actually too high once other costs fall into the mix. For this reason, it is always smarter to err on the side of being conservative rather than aggressive when it comes to negotiating your car payment amount.
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Insurance: most lenders and dealers will not let you even think about getting behind the wheel of a new car without having, at minimum, your state's minimum auto insurance coverage. Some bank lenders even require that you have full-coverage car insurance. There are innumerable resources and options for finding the lowest rate possible. We suggest you do your homework to find the most affordable, most comprehensive coverage for your budget and needs. Speaking to an actual agent may be beneficial.
- Fuel: We all know that gas prices have risen exponentially in recent years. Make sure to calculate your estimated monthly mileage versus your new vehicle's average MPG estimate to determine how much of your budget should be dedicated to fuel costs. Here is the formula: Monthly Mileage / MPG X Price-per-Gallon = Cost of Fuel per Month.
- Tax, Title, & Registration: Remember that registering a new or used vehicle in your name, getting license plates, and paying your state taxes on a new vehicle purchase can total up to several hundred (unexpected) dollars.
- Depreciation: Most new vehicles lose 20% of their value as soon as you drive them off the lot. Used cars depreciate at a continued rate of 10-15% per year. Too much depreciation can get you trapped if you need or want to sell your vehicle before it's paid off. This is especially a concern when it comes to 0 down auto loans, because a traditional down payment of 15-20% makes up for that initial drop in value. For more information, please visit this article on the risk of negative equity.
