How much can you afford to spend?
Keep in mind that the sticker price taped on the car window is the starting point of your car budget – and it only goes up from there. You’ll also need to consider sales taxes, registration, insurance, and any dealer fees on top of the sale price to purchase the vehicle. The costs continue after you get home and the new car smell wears off; you’ll need to factor in routine maintenance and trips to the gas station on top of car payments and insurance in your monthly budget. To draft a budget for your new car:
- Check your credit score: If you plan on financing the purchase of a vehicle, knowing your credit score (not just your credit report) will help you figure out if you qualify for the best (read: lowest) interest rates. If you have a low credit score, you may end up with a high-interest auto loan and may need to lower your budget to account for the higher car payments.
- Find applicable registration fees: States vary when it comes to taxing vehicles. If you’re lucky enough to live in a state with a flat registration fee you can skip this part, but several states have annual registration fees that can add hundreds of dollars to your vehicle’s operating cost each year.
- Estimate insurance: The average auto insurance policy with collision and comprehensive coverage for a new sedan is $1,031 per year, according to a 2010 survey by AAA. However, the policies for many SUVs and luxury vehicles are hundreds of dollars more per year. And if you’ve got a teenage driver in the family or a couple of tickets on your record, you could quickly find yourself paying as much for insurance as you do for your monthly car payment.
- Estimate fueling costs: Another sizable chunk of your car budget should be dedicated to gas, which is expected to get more expensive each year. The Department of Energy and the EPA are responsible for assigning the fuel economy (MPG) of a vehicle, and they also provide estimates of what it will cost to fuel the vehicle for a year. The estimates are available at fueleconomy.gov but keep in mind that they are using the combined fuel economy (city and highway MPG), an average of 15,000 miles, and the average cost of regular unleaded fuel to come up with their figures. If your prospective ride requires premium fuel or your transportation needs are higher mileage than their estimates, you may need to pad your budget a little.
- Estimate maintenance costs: More manufacturers are including up to four years of routine service in the cost of the purchase price or new vehicle lease, but it’s still a good idea to include maintenance fees in your car budget for items that aren’t covered. Keep in mind that even if oil changes are included in your new car purchase or lease, new tires, headlamps, taillights, and windshield wipers will come out of your pocket. Drivers spent an average of 4.44 cents per mile maintaining their vehicle in 2009, according to a AAA study; you can use this data as a starting point to help you get a ballpark figure of how much it will cost to maintain your car each year.