There’s nothing like a brand new set of wheels with its polished paint, pristine engine and that new car smell. But can you afford it?
Beyond its sticker price, a new vehicle carries a number of peripheral costs that can really add up. So, if you’re in the market for a new ride, here are some facts and figures to consider before driving it off the lot. We spoke with John Giamalvo, Director of Dealer Strategy at Edmunds.com for his expert advice.
No matter which car you choose, prepare to spend thousands on a down payment. According to Giamalvo, there’s no such thing as too much of a down payment. “The more money you put down on a vehicle, the more likely you ought to be approved if you have challenged credit. The more likely you are to get the best finance rates available, and certainly the more likely you’ll be to get the best terms available on that loan,” he says. The sweet spot in many car buying cases, he adds, is about a 20 percent down payment. His secret car tip: For every extra $1,000 you can put down on a vehicle, expect to save roughly $20 a month in your monthly payment.
Another key cost to consider is, of course, car insurance, but surprisingly, it’s getting cheaper. “Because of car technology, we’ve seen a relative drop in the cost of auto insurance. Safety devices such as airbags, distance sensors and park assistance have made driving safer,” says Giamalvo. “The reality is, drivers are slowly being replaced by computers, and while some may not enjoy that fact, our roads are safer and insurance will continue to drop,” he says.
With the current national average price of a gallon of regular gas at $3.70 and expected to rise this summer, this is no small consideration. “We’ve seen behavior changes at $4 per gallon,” says Giamalvo. “We see folks move away from the larger SUVs and start to consider the smaller SUVs similar to a Toyota Rav 4.” In the family sedan segment, drivers are beginning to seriously consider hybrid models like a Toyota Camry Hybrid, a Hyundai Sonata Hybrid, and the very popular Toyota Prius, he adds.
Old Versus New
Contrary to popular belief, buying a new car in today’s market, versus an older model – in some cases - may actually save you money. “Conventional wisdom is that the deals reside in a used car, but that’s not necessarily the case. When you consider the mileage and maintenance that’s been put on that car, you might find the better deals in a new car,” says Giamalvo. You might also want to consider a certified pre-owned vehicle to save money, he adds. “It might be used, but the factory comes back in and certifies it and backs that car for you.”
True Cost to Own
Finally, it’s a good idea to check out your TCO or your True Cost to Own, which gives you an estimate of what you can expect to pay over a 5-year period for your new car. This includes fuel costs, insurance, depreciation, as well as repairs and maintenance, says Giamalvo. Edmunds.com offers a TCO Pricing System that takes into account all of these factors and more.