What a Car Actually Costs
The payment is the number everyone shops on and the smallest part of the answer. Four other costs arrive whether you planned for them or not.
The Payment Is Not the Cost
Dealers negotiate on monthly payment because a payment can be made to look like almost anything by stretching the term. The same car at the same price becomes a smaller payment over 84 months than over 48, while costing considerably more in total.
Work in total cost instead. Price, plus interest over the whole term, plus everything below.
Depreciation, the Largest Cost
Depreciation is money you spend without ever seeing a bill for it. A new car loses a substantial share of its value in the first two to three years, which is why a lightly used vehicle is frequently the better financial choice: someone else has already absorbed the steepest part.
It only becomes visible when you sell or trade, or when a total loss pays out the market value rather than what you owe.
Owing more than the car is worth. It happens when the term is long, the deposit was small, or the car depreciated faster than the balance fell. It matters the day you want to sell, and it is how people end up rolling debt from one car into the next, which compounds the problem rather than solving it.
Insurance, Before You Buy Rather Than After
Premiums vary enormously between vehicles that cost the same. Repair cost, theft rate, safety record and whether parts are expensive all feed in, and a sporty model can cost multiples of a sensible one to insure.
Get a quote on the specific vehicle before committing. It takes minutes and occasionally changes the decision.
If you finance, the lender will require comprehensive and collision cover, which is more than a minimum policy. Budget for that, not for what you pay now on an older car.
Fuel and Maintenance
Fuel is easy to estimate and easy to underestimate over a long commute. Maintenance is the one people forget entirely.
Tyres, brakes and servicing arrive on a schedule regardless of how carefully you drive. On an older vehicle, budget for a repair fund as well; the money saved on the purchase price partly goes here, which is fine as long as it was planned.
Taxes, Title and Fees
Sales tax, registration, title and documentation fees are charged on top of the price and are frequently left out of the number people have in mind. How they are calculated varies by state and sometimes by county, so check locally rather than assuming a rule of thumb.
Ask for the out-the-door price in writing: the total you pay including every fee and tax. Comparing out-the-door prices is the only way to compare offers honestly, because the same headline price can carry very different additions.
Many people find total car costs, meaning payment, insurance, fuel and maintenance together, are manageable around a tenth of take-home pay and become uncomfortable much beyond that. It is a sanity check rather than a law, and the useful part is counting all four rather than only the first.
Before You Shop
- Decide the total you can spend, not the payment you can make.
- Get insurance quotes on the specific vehicles you are considering.
- Get pre-approved, so you are negotiating on price rather than financing.
- Ask every dealer for the out-the-door price in writing.
- Add a maintenance figure to your monthly budget from the start.
KCCU offers a vehicle search, so you can look at vehicles and asking prices before you set foot on a lot. Knowing what the car you want sells for is the other half of a pre-approval: one tells you what you can borrow, the other what you should pay. Search vehicles →