Here’s the real cost of owning a new car — and how to get a sweet ride without overpaying

Here’s the real cost of owning a new car — and how to get a sweet ride without overpaying
Be smart about buying a new car. Rido/Shutterstock.com
Be smart about buying a new car. Rido/Shutterstock.com

In the market for a new car? It’ll cost you. Consumers who purchase a new car in 2017 will spend about $8,500 annually on their new ride, or about $706 per month, according to the latest study from AAA, which factors in things like fuel costs, maintenance and repairs.

While $706 a month may sound like a lot of money, that figure is actually a 7-year low, thanks in part to a glut of new cars. In that case, it might seem like a prime time to hit the dealership and get a sweet deal on that brand-new Tesla you’ve been coveting, right?

Not so fast. When you factor in total ownership costs — including insurance, local taxes and financing costs — there’s only one metropolitan area in the country where the average price of a new car is affordable for a family with the median household income there according to a recent Bankrate study.

That’s right. Unless you live in Washington, D.C., where the median household income is more than $90,000, the cost of buying a new car is almost certain to exceed your budget. That’s assuming you use the 20/4/10 rule-of-thumb, which says you should be able to afford 20% of a car’s total cost upfront, sign a financing deal that’s no longer than four years, and have a monthly payment that’s no more than 10% of that month’s income.

Washington, D.C., is one of the large cities in the country where the median income can affordably own a car.
Washington, D.C., is one of the large cities in the country where the median income can affordably own a car. Bankrate/Bankrate

So what do you do if you need a new ride, but can’t afford new car prices? Here’s how to get the car you want for as little money as possible.

1. Take a pass on that new car smell

Relative to used cars, a lot of a new car’s value stems from its newness, and that premium goes away the second you drive it off the lot. New vehicles lose an average of $15,000 in their value in the first five years of ownership, according to AAA’s data. Electric cars depreciate even faster because the technology is developing faster, David Muller, consumer editor at Car and Driver, explained in an interview.

“Frankly, if you’re worried about depreciation, if that’s your primary concern, it’s never a good idea to buy a new car,” Muller said.

The main thing you’re getting by buying new are incremental safety and feature upgrades like blind-spot warning or laser headlights. Those extras can make a big difference to enthusiasts or anyone extra-concerned about safety, but may be less crucial to people who simply need wheels to get to work.

2. Weigh your wants vs. needs

While many people know it’s a good practice to write down your automotive needs and wants, few consumers actually do this in a forward-thinking way. “You need to consider what your life will be like in three to five years,” AAA automotive expert David Bennett explained. “If all of a sudden you’re planning on getting married or starting a family, you may not want a two-door sports car.”

One of your biggest concerns will likely be weighing the value of space versus mileage. If you have a long commute, you’ll want a gas sipper to scale back on the $1,500 in annual fuel costs vehicles consume on average, according to AAA’s data. But if you’ve got kids — or need extra space for camping or ski gear — then you might decide to pull back on mileage in order to have room for all your stuff.

Use resources like Consumer Reports and Kelley Blue Book to narrow down your search to specific models and understand the real value of a used car. When you’ve settled on a few models, double-check local listing sites like Carmax to see what the car is retailing for in your area.

3. Do the math

“Never go into a dealer and tell them how much you want to pay per month,” Muller advised. Chances are they’ll try to get you to spend a little more and will be less willing to negotiate below your price threshold.

Of course, figuring out how you’ll pay for your new wheels is undoubtedly the least sexy part of buying a car, and that’s why it’s one of the first things you should do. After all, there’s no point in getting your heart set on a dream car only to realize that you can’t actually afford it.

In an ideal world, you’d have the entire cost of the car available in cash. But if you don’t — most people finance their car purchases — you’ll need to get a loan to cover the cost. The average used car sold for about $19,000 in 2016, according to Edmunds, although Muller said you could get lucky and find a decent used car, such as a high-mileage Toyota Camry, for as little as $1000.

It’s important to secure financing before visiting the dealer in order to avoid getting swindled into an overpriced financing deal. “They have a whole myriad of dealer fees they can work in,” Muller said. “[And] they don’t have any incentive to work with the lender that goes with the lowest interest rate.”

The more you figure out before you set foot in the dealership, the better price you’re likely to pay.
The more you figure out before you set foot in the dealership, the better price you’re likely to pay. Gene J. Puskar/AP

Start by checking your credit score and report for any errors, since a higher one will lower your interest rate on a car loan. Then see if you can get preapproved for a loan by starting with any financial institutions you already do business with like the bank you use for your checking or savings account. You’ll also want to check insurance costs before you buy using a comparison site like NerdWallet to get the best deal.

And don’t forget to factor in the cost of upkeep. Figuring out your likely maintenance costs will be the toughest hidden cost, but sites like Edmunds have calculators that will help you get a ballpark idea.

4. Don’t trip up on the test-drive

Your test-drive is the fun part, but there are a few things to pay attention to, other than whether you like that tan interior or how cool you look sitting behind the wheel.

The main things you’re looking for are annoyances, as the typical driver spends about 290 hours on the road annually. Are you tall? Check the legroom. If you get overheated easily, make sure you check the air conditioning.

Next see how the car feels on a typical drive. “Drive the vehicle on the route you drive on a day-to-day basis,” Bennett said. “So if you’re going to do a lot of highway driving, you want to make sure you take the vehicle out on the highway.”

Added Muller, “Make sure you’re comfortable driving it. Make sure it accelerates how you want it to and brakes how you want it to.”

You might even consider renting the car you think you want ahead of time, suggested AAA’s Bennett. Alternatively, you can also call ahead to a few dealerships to find one that will let you test-drive the car overnight. When working with any dealer, be on the watch for “bait and switch” type-scams, which are common despite making them susceptible to fraud lawsuits.

5. Don’t get duped at the dealership

It bears mentioning that a test-drive achieves two purposes: Not only does it give you a feel for how the car drives, it also gives the sales person a close-proximity, high-pressure environment to close the deal.

Car and Driver has a good guide for how to flip the script when a salesman starts laying on the pressure. For example, if a salesman tries to push you into extra features, say that “if anything, these features make the car less attractive, not more.”

When buying a used car from a dealer, the most important thing to do is request a vehicle history report, which most reputable dealers will have on hand. If you’re buying directly from a seller, then it’s definitely worth the money to commission your own vehicle history report through a provider like Carfax.

It’s also wise to take any used car to an independent mechanic before making a purchase. It’ll cost you about $100, according to Edmunds — but given that AAA estimates that annual repair costs average $1,186 for a new car, it’s a worthy investment. Use any problems that you learn of to help negotiate the price down.

The more information you have, the more likely you are to keep the upper hand while haggling over the price. Once you’ve landed on the exact model you want, Consumer Reports suggested starting with the invoice price, which is what the dealer likely paid plus about $100, and minus any incentives the manufacturer may be providing.

If the dealer won’t go any lower than the competing prices you’ve researched online, or if they seem overly aggressive or pushy, walk.

Sign up for the Payoff — your weekly crash course on how to live your best financial life.