Eventually, you were able to gather enough money for your first car. Congratulations! But the sticker price is just the starting point for further calculations you should make. Car dealers are very clever people who know how to make you ignore the real expenses – they will show you a payment schedule, but everything else remains invisible. Calculate your expenses before you sign any papers; otherwise, you will face financial difficulties earlier than you can imagine.
First of all, you should think about depreciation which is an absolute killer of your budget. The process of depreciation starts immediately after you buy the car. For instance, a brand new Chevy Malibu depreciates by forty percent within the first three years of its life. This means that you will have to lose money each day while you own the car. Consequently, buying a car which is two years old would be a much better decision to make.
Another aspect to consider would be insurance which might cost you even more than your monthly payments. Insurance rates are the highest for teenagers and young people since they are risky customers. Insurance for a sporty Mustang GT would cost you much more than the same rate for a standard Honda Civic. You should also consider the amount of gas you will spend – it is much cheaper to fill up Toyota Corolla than a V8 engine.
Cheap cars often turn out to be sources of expenses connected with their maintenance. Even though a sporty BMW looks cool, it is difficult to service because it needs premium gas and expensive mechanics who charge you two hundred dollars per hour. Although a Corolla of Toyota is not very attractive, it works well using regular gas and inexpensive parts.
In regard to the issue of financing, young people tend to ignore the extra expenses which accompany this process. For instance, you borrow ten thousand dollars with the interest rate of six percent and pay much more than you took. The higher your credit rating is, the lower interest rate you have to pay. Sometimes it would be better to drive a beat-up Honda Civic which belongs to you rather than having a five-year loan.
Furthermore, you should think about taxes and registration which no one likes to discuss. The state takes its cut of the cake both when you buy the car and when you register it each year. These rates may vary from state to state. For instance, a car registered in Florida would cost you much less than the same car which was registered in New York.
All of the above mentioned factors compose the true cost of the car. It involves depreciation, insurance, gas, maintenance, financing and taxes – everything together. Do not fall in love with the car before you calculate all these expenses.