1. The Direct Cost of Purchasing a New Vehicle
This is the most obvious cost you'll need to consider. According to Kelly Blue Book, as of September 2018 the average cost of a new car in the United States was $35,742. Of course, that price will vary greatly depending on whether you buy new or used, and on the make and model of the car.
You may not be able to buy the new car outright. This means you'll have to factor in the interest rate on your car loan. An average interest rate for buyers with excellent credit works out to over $1,800 in interest payments. If your credit isn't the greatest, you may have to pay more than that.
Add to that any dealership fees you may have to pay, and suddenly the total cost of buying a car may look quite a bit larger than it did at first glance. Bottom line? Be sure to include the interest rate for your car loan, and any other fees, in your direct cost.
2. Your Monthly Payment
True, this is another way to calculate the direct cost of your new vehicle. However, it may be helpful to examine this separately from the car's total cost. After all, if your monthly payments are too high and you fall behind, you'll have to pay late fees, and even risk your lender repossessing your car. That's the last thing you want to happen!
In the first quarter of 2021, the average monthly payment on a new car was $577, according to the credit reporting agency Experian. Whatever your monthly payment turns out to be, you want it to be well within your budget. In fact, you may even decide to pay extra on your monthly payments in order to reduce the interest cost on your loan.
Purchasing a new vehicle is a large investment. Here are five factors to keep in mind as you budget for your next vehicle.
3. Auto Insurance
Auto insurance is one of the single biggest indirect costs of owning a car (if you can call it "indirect," since it's mandatory in most states). There are several types of car insurance coverage that you can purchase, ranging from minimum liability coverage to full coverage (which includes collision and comprehensive insurance). Obviously, the more coverage you take out the higher your insurance premium will be. In Texas, for example, the average annual cost of car insurance ranges from $524 for minimum coverage to $1,823 for full coverage.
In addition, if you plan to have other drivers on your insurance policy, you may have to pay extra for them. If you add your 16-year-old child to your policy, for instance, you may have to pay up to $2,000 more on auto insurance annually.
4. Maintenance and Repairs
As with any machine, your vehicle needs to have regular maintenance in order to run at peak performance. Depending on how often you drive, your regular maintenance costs may add up. According to a study by AAA, the cost of routine maintenance and repairs for a new car comes out to an average of $0.09 per mile. If that's the case, driving 10,000 miles in a year adds up to $900 worth of maintenance costs; 20,000 miles would equal $1,800.
Moreover, if you're planning to buy a used car instead of a brand new one, you may also have to think about potential repair work that needs to be done. It's helpful to have a report on the vehicle's background and history. However, this information is not always available or complete.
5. Fuel Costs
It's no secret that the cost of fuel can take a major bite out of your monthly paycheck. This is especially true if you have to commute several miles to work each day, or have to drive some distance in order to run routine errands.
The cost of gasoline varies greatly from state to state. In California, for example, the average cost of regular gasoline is about $1.50 more expensive per gallon than Texas or Mississippi. The same holds true for premium gasoline and diesel prices throughout the United States.
It's important to incorporate fuel costs into your decision-making process when searching for a new vehicle, especially if you drive a lot on a weekly basis. Look at the car's MPG (miles per gallon) rating, both for highway and in-town driving. That will give you some idea of how much you should expect to pay in fuel costs every month.
Learn More About Purchasing a New Vehicle
In summary, there are several factors that you need to examine when searching for a new car. If you analyze the 5 big ones we talked about in this article, you shouldn't run into any nasty surprises.
Of course, you may need some personalized advice on which makes and models to consider. You may even need some financial assistance to get that new car you've been eyeing for a while. If so, reach out to our friendly team of experts at PrimeWay to start the conversation. We can help you to finance the purchase of your new car, and help you make the right choices for your specific goals and circumstances. Talk to us today to learn more.