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3: Analyze Your Circumstances

The True Costs of Car Ownership

Magnifying glass with carCar ownership might be the best option for your transportation needs, but the costs can add up. And these monetary costs can turn into opportunity costs associated with lost savings or investments. Remember, the actual cost of a car is more than your monthly car payment. 

Down payment: When buying a car, expect to pay anywhere from 5 percent to 20 percent of the car's purchase price for a down payment. A good rule of thumb is that the more money you can put down, the lower your monthly payments will be. Also, a large down payment helps avoid the risk of being “upside down” (owing more than a car is worth). This is a one-time cost.

Car loan: The amount of your loan will depend on the price of the car, interest rates, your credit rating and the length of the loan. Keep in mind that, as the purchase price rises, so may the length of time it will take you to pay off the loan. This is a recurring cost until it is paid off. 

Sales tax: Sales tax rates will vary depending on where you buy a car. You likely will pay state and local taxes on your purchase — even for a used car. This is a one-time cost. 

Car registration fees: Car registration fees are set by each state and are based on the type and age of the vehicle. This is an annual cost. Newer and more expensive cars generally have higher registration fees. Some states also require additional personal property taxes on an annual basis.

Car insurance: Most auto insurance policies are paid every six months for the time you own the car. The costs include coverage for auto liability insurance, medical payments, and collision and comprehensive. Insurers determine auto rates based on four factors:

  • Who is driving
  • Where you live
  • Your accident history 
  • The type of vehicle

Car maintenance: This includes money for gas, car washes, repairs and routine service (such as rotating the tires and changing the oil). These recurring costs vary over the length of ownership.

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