It is no secret that buying a new vehicle is a major investment. While everyone knows the price tag on a new car is often quite high, there are a handful of sneakier ways the total cost might be even higher than you had previously anticipated.
New vs. Used
The first choice a prospective car buyer will need to make is deciding whether they want to buy a new or used car. The sticker price of a new car will be higher than that of a used one, but a used car will require some hidden payments that may drive up the total vehicle ownership cost.
Because a new car has all the bells and whistles, it will have a higher overall value; thus, a new vehicle retains a higher value for longer. Most financial institutions will also offer significantly lower interest rates on a new car than they will on a used one. While that will still typically result in a larger total loan and higher monthly payments for the new vehicle, you may pay more interest as a percentage of the total cost on a used car. This is where People Driven Credit Union (PDCU) members can help narrow the gap between the two, with competitive rates of 4.84% to 6.4% on new vehicles and APRs of 5.44% to 7.0% on used cars.
A third way that new and used cars have different sneaky fees comes once you are shopping for insurance. Since new cars have more value, insurance premiums to cover them are also higher month-to-month.
Before you head to the dealership, you will need to consider: How long do you plan to keep your new vehicle? How important is it for you to have the newest technological features? What is your monthly budget? Once you answer some of these questions, you will know whether a new or used car is the right choice for you.
How Down Payments Affect the Total Cost of Your Loan
The next important step in calculating the true cost of car ownership is seeing the way in which a down payment or loan term will alter the amount.
Some car dealerships offer purchases without any down payment. While this may initially seem attractive, it can also significantly impact your loan: The less you pay as a down payment, the higher your interest rate and monthly payments will be. You will be paying significantly more interest over the life of your loan.
For this reason, PDCU recommends its members make a down payment of 10–20% if possible.
In a similar vein, the length of your loan will impact both total cost and monthly payments. The quicker you pay off your loan, the less you will pay in interest as a total sum. However, a shorter loan term requires higher monthly payments, even if the interest rate is the same for both. At PDCU, loan terms can stretch as long as 96 months.
If you alter the size of your down payment and change the loan terms from short to small, you can drastically change the total cost of your vehicle. Make sure to consider both of these factors before making a final decision.
Revealing Hidden Fees
Unless you work in the automotive industry, there are probably a handful of hidden fees or penalties you might not be expecting. Whether it is pre-payment penalties and credit insurance or titles and registration fees, there are many factors that impact the final bill besides just the car’s listed price.
At many financial institutions, paying off a loan earlier than the agreed-upon length can result in a fee in order to offset the bank’s loss of the potential interest. However, at PDCU, we care about what is best for your financial situation. You can pay off your loan at any time without any penalties.
Another cost to keep in mind is Guaranteed Asset Protection, or GAP insurance. Though it is optional and not technically hidden, GAP insurance is a cost that many people do not consider. When you buy a new car, its value can depreciate quickly and your remaining loan may become higher than the cost of your vehicle. This is where GAP comes in, helping to cover the difference between the value and the loan if your car gets stolen or totaled in an accident. While you will be paying more per month, the peace of mind that comes from knowing you have some protection in case of financial hardship is worth it for some buyers.
A better-known type of hidden fee comes later in the car buying process, when you need to pay taxes, transfer the title and plates, and register the car with the state.
In Michigan, you will need to pay a 6% sales tax on your car. Some dealerships will include this sales tax in their advertised price, but many will not, so make sure you take that into account.
The fee for transferring a title and license plate is usually a small amount: between $10–15 for the plate and $15 for the title, according to the Michigan Secretary of State. Additionally, registration fees can vary widely depending on your make and model or the age of your car, but the amount will typically fall in the hundreds of dollars.
Other hidden fees can pop up during the car-buying experience, especially if you finance your auto loan through the dealership. At PDCU, we want to help our members have the smoothest possible auto purchase, and we will be upfront in our efforts to get you the best deal on your new or used vehicle.
If you get your loan pre-approved at PDCU, you can lock in a competitive interest rate and strengthen your negotiating power before you ever hit a lot or take a test drive. We also offer a handful of benefits for members, like a $35 fee to skip a month’s payment once per year and our 0.25% APR discount if you enroll in AutoPay.
How Maintenance Can Cost and Save Money
Ongoing maintenance costs do not have any impact on your auto loan or its payment amounts. However, the cost of keeping your car maintained can be a double-edged sword in terms of the total amount you are paying each month.
All cars will require some degree of routine checkups and upkeep, a few hundred dollars per year spent on oil changes, tire rotation and brake inspections. Though it might feel like you can easily save a few bucks by skipping these things every now and again, it might end up costing you more in the long run if something goes wrong.
Wear-and-tear fixes and unexpected repairs are where a big difference between new and used cars can come into play. A new car will require less wear-and-tear upkeep than a used one. So while the initial price of a used car is lower, once you factor in replacement of failing parts, the gap between new and used may not be quite as wide as it seemed at first glance.
Unexpected repairs are, as the name suggests, impossible to predict. A flat tire, an accident, or a rodent chewing through an important wire cannot be factored into the total cost prior to purchase. But knowing these sorts of things can happen should be in the mind of any car buyer, and having a plan to save some money for such an emergency is important.
If an emergency savings fund is not an option, PDCU can help in the form of a personal loan with quick cash, secured and unsecured loans for you to consider.
Don’t Forget the Fuel!
The final important aspect to consider in the total cost of vehicle ownership is the cost of gas. While the price at the pump goes up and down throughout the year, having a good idea of the gas mileage and tank size of your new car is critical.
Maybe you like the aesthetics of a pickup truck, but the average of 15–25 miles per gallon scares you off. On the flip side, while a sedan may not look as flashy as a sports car, the 27–35 miles per gallon average might make it a tempting choice.
Sometimes you will be pigeonholed into a certain option, like if you need a minivan for your large family or a new work truck. In that case, it is important to compare the fuel consumption of various years, makes, and models in that class of vehicle.
The Takeaway
It may take some time and some effort, but if you do your research it quickly becomes clear just how much money is coming out of your pocket before you sign on the dotted line.
If you are still unsure of how to juggle the calculations of the total costs of auto ownership, stop by your local PDCU branch or give us a call at 248-263-4100 and one of our representatives can help guide you through the process.
FAQs
What do I need to apply for an auto loan?
To apply for an auto loan with People Driven Credit Union, you will need a valid ID, proof of income (like pay stubs or tax returns), employment information, vehicle details (if you’ve already chosen one), and proof of insurance.
What is the Special Loan Rate Discount?
Our Special Loan Rate Discount offers a 0.25% APR reduction when you set up automatic payments (AutoPay) for your loan from a People Driven Credit Union checking or savings account. This discount is already included in the “as low as” rate advertised. To enroll in AutoPay and receive the discount, please call us at 248-263-4100. A representative will assist you in setting up monthly automatic withdrawals from your PDCU account. Note: The discount is available only for eligible loans with AutoPay set up from a PDCU account. Terms and conditions may apply.
Can I refinance my dealership loan through a credit union?
Yes, you can refinance your previous auto loan at PDCU to change your term length and monthly payments.
What recreational vehicles does PDCU finance?
In addition to cars and trucks, PDCU finances motor homes, campers, boats, motorcycles, ATVs, and snowmobiles!
