Published July 3, 20193 min read
Updated September 21, 2020: Buying a car is expensive, and there are often additional expenses to consider beyond the sticker price. Some can take you by surprise if you’re not prepared for them.
To ensure you’re making a wise investment, it’s important to do your research. Here are seven hidden costs you may face when you buy a car.
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Unless you buy a car in cash, you’ll have to take out a loan, which include financing charges. These are the actual charges for the cost of taking out the loan, based on the interest rate.
You credit score, the type of car, and the terms of the loan will determine your interest rate. To save on financing charges, save up for a large down payment and shop around for the best rate.
All cars, both new and used, are subject to a sales tax. How much in taxes you pay depends on where you live.
Nearly every state has some form of sales tax, ranging from 2% to 8%. Consult your dealer or a tax authority to find out how much in taxes you’ll owe and budget accordingly. Even if your state doesn’t charge sales tax, you may still have to pay a special tax rate for your car.
You can’t legally drive your car unless it’s registered in your name. This means dishing out some money for registration, license plates and required title documents.
The cost to register a car and obtain a title varies by state. For example, if you live in Illinois, the registration fee is $101, while the title fee is $95. If you live in Kansas, your fees will be far lower as it’s only $35 for registration and $3 for the title. Check with your local Department of Motor Vehicles to calculate your state’s fees.
Most dealers charge a documentation fee. It’s a processing fee for them to do the paperwork.
Some dealers also charge a preparation fee to get your car ready (including a car wash and oil check) and a delivery charge if your car needs to be delivered from the manufacturer. There may also be an advertising fee, which is intended to cover the dealer’s cost of selling a car.
Most of the dealership fees are negotiable, so it doesn’t hurt to discuss them. Here are some other fees you should never pay.
Although car insurance coverage isn’t required by all 50 states, it’s essential to invest in it. If you get into an accident, you may be left with hundreds or even thousands of dollars of out-of-pocket expenses. Fortunately, you can do some comparison shopping and find the ideal plan for your budget and particular needs. On average, car insurance costs about $1,600 per year.
Gas can be pricey, especially if you drive often and buy a car with poor gas mileage. The amount of money you pay for fuel will depend on the miles per gallon on your car, as well as the specific gas prices and road conditions where you live. If you have a long commute to work or drive out of town frequently, consider buying a car with good fuel economy ratings.
If you buy a brand new car, expect to pay money for routine maintenance like oil changes and tire rotations. The older your car is, the more likely you’ll have to pay for other repairs such as new tires, battery replacements and windshield replacements. (Learn if car insurance covers regular repairs.)
The reality is that owning a car is a significant expense. By taking the time to familiarize yourself with the hidden costs of buying a car, you can budget properly and avoid unnecessary surprises down the road.
Ready to buy? Check out our guide to buying a car.
Image: Felix Fuchs
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