Cost Of Buying A Car
We've all heard that buying a car is a game, and we've got to learn how to play it. There's all sorts of things that they tell you to do once you get to the dealership. But the truth is, after you've made that handshake deal and agreed on a price point, that's still not the full price you're going to pay.
cost of buying a car
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These may appear to add up to the agreed price, but there are actually additional costs depending on your down payment and the length of your loan. Longer terms mean smaller monthly payments, but also mean you'll be paying a lot more in interest over the life of the loan. Plus, if you're buying used or you plan to upgrade your vehicle in just a couple of years, a long-term loan might even outlive the life of your car.
Try sticking to a five-year loan for buying a new car and a three-year loan for buying a used car. Always review the terms and find a payment option that works for you. But in most cases, paying it off sooner is better.
On top of this, don't forget about your state's registration fees. These are typically at a fixed rate and will be the same regardless of the car you drive. But make sure you're double checking for your location and factoring these into the final cost.
The next thing we have to consider are our insurance premiums. This is a big one because insurance costs make up a pretty significant portion of the total price of buying a car and they are dependent on a wide variety of factors.
The cost of your premium is affected by your age, where and how much you drive, your deductibles, your accident history, as well as the make, model and the price of your car. That expensive red sports car might look nicer than the beat-up station wagon, but it's also going to cost a lot more to insure.
Once you know the car you're planning to buy, consider getting estimates from three or four different insurance providers. This will give you a better idea of the true cost of buying your car and help you pick an insurance provider that suits your needs.
You might also look into a hybrid or electric car. These may cost more to purchase but could likely save money on operating costs over the long haul. You may even receive a tax credit for driving an electric car, so do your research prior to stepping into the dealership.
It's not just the cost to buy our car, but it's also the cost to own it. If you're buying your car, remember that used cars may be cheaper up front but could require more maintenance in return; whereas new cars will run you a higher price but should run for longer without needing to be looked at.
The final price you pay when buying a car isn't only the cost of the vehicle itself. You'll also pay documentation fees and sales tax. However, you could find additional fees tacked on to the final cost that aren't necessary. Depending on your situation, you may be able to negotiate fees that can reduce the overall cost of the purchase.
The vehicle registration fee includes the cost of registering the vehicle, issuing a title, and the cost of the license plates you attach to your vehicle. The registration fee is affected by the car's current value, fuel efficiency, age, and sometimes even its weight. Different states calculate the fee based on a variety of factors, while others charge a flat rate. Registration can range in price from less than $50 to more than $200, depending on where you live.
The documentation fee covers the cost of preparing and filing the sales contract and other relevant paperwork. Some states place limits on how much these fees can cost. Other states have no limits on how high these fees can go. The difference between documentation fees in states that do and do not limit them can be significant. While some states limit fees to just less than $100, the median documentation fee in some states without such limits can exceed $600.
The three costs listed above are standard mostly everywhere across the country. However, you can challenge or negotiate down some fees when buying a new car. Some dealerships add on fees to increase their profit. The state doesn't legally require these fees, so many dealerships will drop them if you threaten to walk away from the purchase. There are some unique fees when buying a new car that may be negotiated, including:
Take the time to research the average cost of the vehicle that interests you. Know its Kelley Blue Book value, the cost of add-ons, insurance, and other expenses. If you're an informed buyer, it'll give you an edge in negotiations. Ask the salesperson for a complete, detailed breakdown of all expenses before you agree to a deal. This gives you a better understanding of what you're expected to pay and what it'll cost you overall.
Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.
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To answer that question, Edmunds has created a chart with the most common fees you may encounter when you're buying a new car. In addition, we show how different states charge sales tax on trade-ins and rebates. If you've never used the chart before, it's worth reading about the process first. But you also can quickly refer to the fees chart.
Vehicle registration fee: This is the amount the state charges to register a new vehicle, assign a title (legal proof of ownership) and cover the cost of license plates. The dealer provides this service for you, saving you a trip to the Department of Motor Vehicles. Usually, the more expensive the car is, or the more it weighs, the higher the registration fee. Some states are now charging higher registration fees for vehicles that average less than a predetermined mpg. Similarly, there are a number of states that charge more for an electric vehicle's registration. The higher costs are designed to offset the losses the state might receive from gasoline taxes since the EV would not use any fuel.
Documentation fee: Dealerships charge car buyers a documentation fee, or "doc fee," to cover the cost of preparing and filing the sales contract and other paperwork. In some states, the doc fee is limited by state law. In other states, the doc fees are unregulated. Dealerships may sell a vehicle at an attractive price but then add a high doc fee to the contract.
Review the chart below to see how your state handles doc fees. If your state does not limit doc fees, find out early in the buying process what the dealership charges. Most dealerships will not negotiate the doc fee itself, but there may be a workaround. If the doc fee is substantially higher than your state's median, which is listed in the chart, negotiate the car's price more aggressively to offset the fee. And keep in mind that dealers also charge sales tax on the doc fee.
You probably expect to be assessed sales tax on the amount you pay for your new vehicle, but it might surprise you to learn that there are other tax issues that can also affect your out-the-door cost. Here is how different states handle taxes:
Trade-in: In many states, if you trade in your old vehicle, you can get a nice tax break. If there is a "Y" in the "Trade-in sales tax credit" column for your state, you are only taxed on the difference between the new car and your trade-in. So, if your new car costs $25,000 and you are getting $10,000 for your trade-in, you will only be taxed on the difference, or $15,000. If sales tax in your state is 10%, this will save you $1,000. If there is an "N" in the column, it means that you will pay tax on the full amount of your new car purchase and the trade-in has no bearing on the sales tax you are charged. 041b061a72