Pierre Money Mart Blog

If you buy a vehicle, you will pay some financing costs upfront such as fees, registration and taxes. Unless you qualify to receive zero-percent financing, you will pay interest over the loan term if you borrow. Interest expense is usually the main financing cost of an auto loan. If you lease, the entire lease payment is a financing cost.

In addition to financing costs, vehicle ownership has other costs. These costs include insurance, operating costs and registration fees. Insurance premiums can easily exceed $1,000, or even $2,000, a year, depending on the vehicle. Insurers base your auto-insurance premium on your age and driving record. Insurers also determine a base-level premium for the type of vehicle you are insuring. Generally, vehicles with a record of high theft or involvement in accidents have higher base-level premiums.

Operating costs of a vehicle are perhaps the highest component of ownership costs. You need fuel and oil to run your vehicle, new tires, replacement bulbs and fuses, and other parts associated with the normal wear and tear of a vehicle. Yearly operating costs are related to how much you drive. For example, a person who drives 10,000 miles a year will generally pay less in operating costs than a person who drives 30,000 miles a year. (As a lessee, you generally aren’t responsible for operating costs outside of fuel.)

You will owe annual registration fees and have your vehicle inspected periodically to ensure it is compliant with pollution-emissions standards. Depending on the weight, age and condition of the vehicle, these costs can exceed $500 or $1,000 a year.

Finally, depreciation affects the value of your auto when you seek to resell it. An auto that “holds its value” depreciates at a slower rate. Thus, a slowly depreciating vehicle tends to have a higher blue-book value than a vehicle that depreciates more quickly.

Read our do-it yourself Credit Repair Manual here.

1. Make sure you are getting the right vehicle.

This seems obvious, but you could wind up an unhappy car owner if you haven’t thought carefully about how many people and how much luggage or gear you need to carry.

2. Assess the worth of your old car.

Whether you plan to trade it in or sell it, your current car can be an important factor in your budget. Checking the right Web site and maybe your local newspaper will give you a realistic valuation. Selling it directly instead of just trading it may also mean a sizeable difference in what you get for it, though it may take a while longer to reap the proceeds.

3. Decide whether new or used is best for you.

Cars are built better now than in the past, so used cars make a lot of sense. But if you get a rebate or other cost break, the math may be on the side of a new vehicle.

4. Consider whether leasing or buying makes more sense.

Leasing provides lower monthly payments than buying with an auto loan. But it’s not for everybody. If you don’t have money for a down payment or if you trade your car every two or three years, you may be a good candidate for a lease.

5. Do your homework and set your target price.

The Internet has made it easier than ever to find out the dealer’s cost for each vehicle and its options. That’s the first step to getting the best possible deal.

6. Shop for money before you shop for the car.

If you plan to buy with a loan, check your credit union or local bank quotes online to find the lowest rate. Getting a pre-approved loan will give you added confidence in negotiating a good price.

7. Negotiating a lease.

In the complicated world of leasing, the dealer will have the upper hand unless you learn the jargon and how to negotiate the various segments of a lease deal.

8. Negotiate a purchase.

If you are doing it yourself, get bids from several dealers, keeping the focus on the dealer’s invoice price, which you will know from your research. You may also be able to get bids without going to showroom after showroom.

9. If you hate haggling, consider using a car-shopping service.

Auto-buying services, such as Web sites or discount clubs, make things easy with pretty good, no-haggle prices. But with most of them, you get quotations from only one dealer. Consumer services that shop several dealers near you may deliver even better prices.

10. Don’t let the deal-closer close out your savings.

The finance manager isn’t there just for the paperwork. He or she wants to sell you high-profit financial and mechanical add-ons. These are seldom worth the money.

Check out our do-it yourself Credit Repair Manual here.