7 Surprising Facts About Buying a Car That You Probably Didn’t Know
So, you’re thinking about buying a car. You’re not alone. Chances are, you already knew that most of your friends, neighbors and coworkers own a car — or two or three. Especially if you live in a heavily congested area, you’ve probably experienced the joys of bumper to bumper traffic during rush hour.
But there are some facts and trends about buying and owning a car that are worth knowing before you get one. That way, you can make an informed decision about whether you truly want to make the purchase and if it works within your needs and budget.
Learn More: Why You Should Stick To the One-Tenth Rule When Buying a Car
Find Out: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
Dealerships Tend To Have a Lot of Hidden Fees
Whenever you make a big purchase, you can expect there to be surprise costs. Some dealerships will charge you multiple fees on top of the base purchase price of your vehicle, which can make owning a car much more expensive than you expected.
One such fee is the delivery fee, or destination fee.
“These are costs associated with getting the vehicle from the factory to the dealership,” said Tariro Goronga, an automotive expert and the CEO of DriveSafe Driving Schools in Colorado. “They’re non-negotiable and can add a significant amount to the final price of the car.”
Another less common fee — but one still worth knowing about — is dealership preparation fees.
“Some dealerships charge for preparing the new car for sale, including removing plastic covers, washing the car and a pre-delivery inspection,” said Goronga. You might be able to waive or lower these fees, depending on the situation.
Other dealership fees include title and registration fees, extended warranties, maintenance plans, sales tax and advertising or marketing fees. Read the fine print before signing any documents or applying for financing to ensure you know exactly what you’re buying and for how much.
Read Next: I’m a Car Expert: Here are 3 Reasons I’d Never Buy a Used Car From a Dealership
Extended Warranties Don’t Cover Everything
Like maintenance plans, extended warranties are generally optional, meaning you can skip them altogether or potentially negotiate the price. An extended warranty could be a good idea if you’re worried about protecting your car beyond what the original manufacturer’s warranty covers. However, they’re not always worth it.
According to ConsumerAffairs, the average extended warranty lasts for anywhere from three to six years and costs between $2,000 and $5,000 in total. They usually include a down payment, regular monthly payments and a deductible. The level of coverage varies, but plans with extensive coverage options usually cost the most.
Roughly 47% of car owners have an extended warranty. However, only about one in 10 people have actually used theirs.
Before getting an extended warranty, ask yourself if it’s worth the cost. If, for example, you’re getting a luxury vehicle that’s much more expensive to repair, it might be. But if you’re going with a more standard vehicle, like a Toyota Corolla, it might not be necessary.
Leasing Is Sometimes Cheaper, But Not Always
If you’re on the fence about leasing or financing a vehicle, there are a few things you should keep in mind.
“Leasing can be cheaper in the short term but may end up being more expensive if you plan to keep the vehicle for many years,” said Goronga. That’s because you’re essentially opting to continually rent the vehicle rather than to eventually buy it.
“Leases also come with mileage restrictions, which can incur hefty fees if exceeded,” said Goronga. Generally, you can drive between 12,000 and 15,000 miles a year on a lease without exceeding the limits. For the average driver, this shouldn’t be an issue. But if you plan to take long road trips, it could lead to excess fees.
Financing could be cheaper in the long run, assuming you plan to eventually own your vehicle and keep it for the foreseeable future. But if you want to save money here, you might not want to finance through a dealership.
“Financing through the dealer might not always offer the best interest rates compared to securing a loan through a bank or credit union,” said Goronga. “Shop around for financing options before making a commitment.”
According to Experian, borrowers with good credit score could expect an interest rate of about 5% or so on a new car. Used cars tend to have a higher interest rate of about 6.79% on average for good credit borrowers.
New and Luxury Vehicles Depreciate the Fastest
You’ve probably heard that vehicles start losing their value the moment you drive them off the lot, and that’s true. But new vehicles depreciate more quickly than used ones — sometimes as much as 20% or 30% within the first year.
Luxury vehicles aren’t any better. Visual Capitalist ran a study to determine how much luxury cars depreciate over a five-year period. The answer: Anywhere from 57% to 65%.
Goronga suggested looking into nearly-new or certified pre-owned vehicles instead of brand new ones. These have already experienced the initially high depreciation and will lose value more slowly.
Ownership Costs Are Higher Than You Think
When it comes to budgeting for a car, it’s not just the initial price tag or interest rate on your loan that you need to think about. It’s also the total ownership costs.
According to AAA, the average new car owner spends $12,182 a year — or $1,015 a month — on their vehicle. This includes maintenance, gas, monthly financing and other fees. Still, it’s a significant chunk of change.
Before buying a vehicle, it’s especially important that you don’t underestimate maintenance or repair costs.
“Older cars may have higher maintenance costs due to out-of-warranty repairs,” said Goronga. “However, newer cars could also carry expensive maintenance schedules and higher insurance premiums.”
Hybrid and electric vehicles usually have lower maintenance costs, Goronga added. Even so, it’s a good idea to see what other people have spent on similar makes and models to ensure you have a clear idea of what you’re getting into.
Vehicles Now Last Much Longer
Cars used to only get about 50,000 to 100,000 miles. They also tended to last around 7 years on average. Fortunately, you can expect much more use out of a conventional vehicle today.
“Thanks to advancements in technology and materials, the average lifespan of cars has been increasing,” said Goronga. “Many vehicles can now surpass 200,000 miles with proper maintenance.”
Assuming you drive the average of about 12,000 miles a year, a new vehicle could theoretically last you 17 years.
Electric and Hybrid Vehicles Are (Slowly) Taking Over the Industry
You’ve probably heard about electric vehicles (EVs) and hybrids hitting the road — so to speak — and it’s true. They’ve become much more popular in recent years.
“The shift towards sustainability has seen a rise in electric and hybrid vehicles,” said Goronga. “Not only do they offer the benefit of reduced fuel costs, but they also come with various tax incentives in many regions.”
With a new plug-in or fuel cell EV, for example, you could qualify for a tax credit up to $7,500. That can reduce what you’re paying quite a bit.
But the transition to electric vehicles in particular is still relatively slow. As of last year, only about 8% of newly registered cars were EVs. These vehicles are also more popular in areas like California and Washington than they are in other locations — possibly due to the greater availability of charging stations or the climate.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 7 Surprising Facts About Buying a Car That You Probably Didn’t Know
