Martin finds out he could have avoided a sky-high interest rate in our latest video collaboration with Matthew Giuffrida.
Purchasing a car is a big investment and depending on the age, make, and model of the car, it can easily cost you a couple thousand to several thousand dollars. When buying a car, most people consider the sticker price that the dealership has written on the vehicle. But there are several additional costs that most people do not take into account when they’re looking to purchase a car.
It’s important to know what these hidden costs are so that you can take them into account when deciding how much you can afford to spend per month on a car. If your car budget is tight or you’re simply looking to live within your means then these tips will help you from overspending.
6 Hidden Costs of Buying a Car
1. Car insurance
Car insurance is required by the law and you must purchase it right away in order to drive your car. Unfortunately, car insurance can be extremely expensive. Costs easily vary between a couple hundred to a few thousand a years depending on a number of factors. The model, year and style of your new car will greatly affect the premium you pay for insurance. Your age, whether or not you’re a new driver and your driving history will also be taken into account when you contact your insurance company.
If you’re looking to save money or are on a budget, it is important that you know what you will be paying per month on insurance before you buy a car. By understanding your insurance costs you’ll know how much you have left to spend on the car itself.
Find out if your car insurance covers your friend driving your car.
5. The Financing
The interest that you end up with will either make your loan payments more manageable or draw out the length and total cost of your car. Most people focus on the numbers on the actual price tag of the car they want to buy and don’t realize how much more they will end up paying the dealership in interest.
For example, imagine you want to buy a car worth $ 45,000. Your lender offers you a deal, where you get $11,000 off and you get to finance the car over an 8-year period with an interest rate of 4.25%. That way you only have to pay 219/biweekly.
While you’re only financing $34,000 due to the $11,000 discount, with the interest, you end up paying $45,552. That’s the original cost of the car. Car dealerships are tricky and are known to twist their words to make a deal sound better than it is. Always be sure to calculate how much interest you’ll be paying.
Learn more on how dealerships screw over Canadians.
It’s also a good idea to try to get a loan with a short term rather than a long term as you may end up with an upside-down loan. This happens when your car value depreciates to a point where you end up owing more than what the car is worth.
If you can wait a while to buy the car you want, save a little more for a down payment then you’ll be able to reduce the size of the loan you need and therefore have to pay less in interest in the long run.
2. Maintenance and Repair
Maintenance and repair costs can be overwhelming sometimes and most people are usually unprepared for them. Accidents happen and parts break and need to be repaired so it’s a good idea to have some money set aside for these situations even before you decide to buy a car. It’s also a good idea to research the make, model and year of the car you want to buy, that way if others are reporting serious issues you’ll know before you decide to buy it.
Have you been in an accident? Cover your costs with a car accident loan.
Also consider what kind of driving you’ll be doing, long distances every day to work or short distances around your neighbourhood. This will affect the kind of maintenance you should expect your car to need and should also affect what kind of car you buy.
Find out if you should buy a new or used car.
3. The Cost of Gas
The cost of gas is another serious investment that you must make on a regular basis is order to use your new car. Because the cost of gas is continually rising it’s a great idea to research the fuel consumption of the car you’re interested in. Different models of vehicle will have different sizes of gas tanks and they’ll consume gas at different rates so your gas bill each week or month will vary depending on what car you buy, so be smart and choose wisely it could end up saving you a significant amount of money on gas.
Hate paying for gas? Consider getting a hybrid car.
4. The Warranty Package
The car warranty can be either be very beneficial or a total waste of money. It’s important to make an informed decision because it could add an unnecessarily large amount onto your monthly car costs.
If you don’t plan on having your car for a longer period of time then it’s probably unnecessary that you buy a warranty package, most likely your car will still be covered by the factory warranty for the time you own it.
However, if you plan on keeping your car for a long period of time it’s a good idea to look into the costs of a warranty. There are different kinds of warranties and different types of cars need a warranty to cover certain parts. As such, be sure to read the details and understand what warranty will work best for you. A warranty is an extra expensive expense so you don’t want to choose the wrong one and have it be both a waste of money and ineffective for your car.
6. The Optional Add-ons
Optional add-ons can customize your car to your personal needs and make it look much more impressive, but one thing that people don’t realize is that a car comes in a basic model and all the extra add-ons cost a lot of money. Make sure you don’t go to the dealership expecting a sunroof and a rear spoiler for no extra charge because you’ll be both disappointed and shocked at the cost.
There are many hidden costs when it comes to purchasing a new vehicle. Be sure to do your research and understand what you want before entering a dealership. Being prepared will prevent you from being confused and giving into optional add-ons. Moreover, placing a large down payment will help save you from interest costs and upside-down loans.
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