Buying a new car is a huge decision that involves planning and researching. But after you have found the perfect make and model, there is still work left to do. You have to consider all the hidden costs of purchasing a vehicle to make sure you can afford it.
Finance Charges
When you purchase a new car, you will probably need a loan or lease to pay for it. Although you can get a general idea of the cost by checking prices at a dealership, there are extra fees that are part of the finance charges.
First, look at the interest rate. A high interest rate can add thousands of dollars over the life of your loan or lease. In general, newer cars tend to have lower interest rates than used ones. A hidden fee you have to consider is the trade-in fee some dealerships charge. There are also title fees and taxes that can increase the cost of the car.
You can use an online auto loan calculator to estimate how much a vehicle will cost. The calculator lets you adjust the car price, interest rate, loan term, down payment, trade-in value, sales tax and other fees. The calculator can show an average monthly payment and the total cost of the car.
Car Insurance
A new vehicle usually has a higher car insurance rate than an older one. You can use online tools to see how much the year, make and model of a car affects the insurance cost. One thing to keep in mind is that rates can vary greatly among different insurance companies even for the same year, make and model.
If you decide to lease a car, be aware that your car insurance may be higher because the dealership may require you to carry more coverage. They do this because the car technically still belongs to them, and you have to return it to them after the lease period is over.
Dealerships may also ask you to buy guaranteed asset protection (GAP) insurance when you lease a vehicle. GAP insurance covers the cost of the vehicle if it is stolen or in an accident. Cars depreciate in value as soon as you drive them off the lot, so GAP insurance provides some peace of mind to dealers who worry about the car being lost before you pay off your lease.
Dealership Fees
Dealerships often get a bad reputation for trying to add unnecessary or hidden fees that inflate the price of a car. You have to be vigilant and pay close attention to the paperwork you sign. Remember, you can push back on some fees and ask them to be either reduced or eliminated.
One type of common fee that dealers charge is a destination fee. It is the fee that the dealership charges for transporting your car from another location. An easy way to avoid this hidden fee is to only buy a car that is available on your dealer’s lot. This may mean you do not get the exact color you want, but it can save you money.
Usually, it is difficult to negotiate or eliminate a destination fee if the car has to be delivered to you or the dealer. You may want to use a map calculator to find the exact distance, so you have a stronger argument for a lower fee.
Another common dealership fee is a documentation fee. The dealer may charge this to cover the cost of preparing all the paperwork to sell you the car. This includes time and effort along with paper and printing costs. Sometimes dealers call it the processing or handling fee. The fee can be $100 or more, so it is worth it to try to negotiate it down.
There are a large number of additional charges you may see from a dealer, such as tinting, fabric protection, rustproofing and VIN etching. Most of the time, these are extras that you can either negotiate down or eliminate. You can get these services and products from other places. Do not let a dealer intimidate you into paying for something you do not want or need. You can always walk away from a deal and find another dealer.
Emissions Inspections and Fees
Many states require an emissions inspection and charge a fee for it. This is usually an annual requirement, but it can vary. You cannot negotiate or reduce the fee. The inspection checks your vehicle to make sure it meets the state and federal guidelines for emissions.
Although the rules can vary greatly from state to state, usually you have to do the inspection before registration or renewal. In some cases, you may be able to obtain a waiver, such as for those who are senior citizens or disabled. If your vehicle does not pass the inspection, you have to pay for repairs to get ready for reinspection, which is another hidden cost.
Maintenance Costs
If you have owned a car previously, you are probably familiar with maintenance costs. This is true especially if you had a used vehicle in poor condition. But if you are buying and maintaining your first car, then you may be in for a shock when you take the car to get fixed.
It is almost impossible to predict maintenance costs for a car. You may be fortunate and have a vehicle that does not need much work beyond regular oil and filter changes. On the other hand, you may end up in an accident or have a car with a lot of recalls.
Buying a new car can be an exciting and scary adventure. From finding the perfect model to figuring out insurance costs, there are many things to consider during the process. There are also hidden costs, such as dealership documentation fees. This is why it is important to think about all the fees that are part of purchasing a car. It can help you budget and plan before you make a big decision.