Prepared car buyers know that the true cost of buying and owning a new car involves more than simply a big rebate, a competitive price or an agreeable monthly payment. There are hidden costs as well. In addition to these important elements, the cost of owning a new car is determined by these factors:

  • Financing charges, if any
  • State and local tax rates
  • Tax credits, if any
  • State licensing fees
  • Insurance premiums
  • Fuel economy estimates
  • Maintenance and repair costs
  • Predicted vehicle depreciation

To ensure that the vehicle you choose provides maximum value at minimum cost, it is important to consider all of these hidden costs when deciding which new car best fits your budget.

Financing Charges

When a person finances a vehicle, a monthly payment is made for a predetermined number of months. The monthly payment amount can vary depending on the size of the cash down payment, the length (or term) of the loan and the loan's interest rate. Typically, lower interest rates are offered for new cars, while used car buyers must pay a higher interest rate.

To reduce the amount of the monthly car payment, a car buyer can make a bigger cash down payment, extend the term of the loan and find financing with a lower interest rate. Let's take a look at how modifying these variables can impact the monthly payment for a 2013 Honda Accord EX Sedan with a 4-cylinder engine and a sticker price of $26,195.

Loan Option #1: Zero down, 60-month financing, 5 percent APR = $494.33 per month

Loan Option #2: $2,500 down, 60-month financing, 5 percent APR = $447.15 per month

Loan Option #3: $2,500 down, 60-month financing, 6 percent APR = $458.09 per month

Loan Option #4: $2,500 down, 72-month financing, 6 percent APR = $392.69 per month

When trying to determine your model or dealership, be absolutely sure that you are comparing vehicles using identical down payment amounts, loan terms and loan interest rates.

Source of values: Loan calculator on Bankrate.com

Leasing Charges

If you are leasing a new vehicle, the equivalent of a financing charge is applied to the formula used to calculate the monthly lease payment. This is known as the money factor. The money factor is not expressed as a percentage, like a financing rate for a conventional car loan. Rather, the money factor is expressed as a very small number that can be converted to a conventional interest rate by multiplying the number by 2,400. The smaller the money factor, the lower the effective interest rate.

Using the Honda Accord EX above as an example, let's see how a change in the money factor impacts the monthly payment for a 36-month lease with a $2,000 capitalized cost reduction (down payment), a 50 percent residual value (value of the car at the end of the lease) and a limit of 15,000 miles per year.

The first lease payment is written using a money factor of 0.0029, which translates to a 6.96 percent interest rate. An Accord buyer selecting this deal will pay $416.41 per month for the lease. If this person shopped around for the best lease rate and could obtain one for 0.0024 (5.76 percent), the payment for this Accord drops to $397.77 per month.

When comparing lease payments for the same model between different dealerships, be sure to use the same values for the cash down payment (capitalized cost reduction), the lease term and the annual mileage limit to help you make the best decision. Doing so allows you to identify differences in the price of the vehicle (the capitalized cost) and the money factor between deals.

Source of values: Lease calculator on Bankrate.com

State and Local Tax Rates

In rare instances, buying a car in a different city or county within the same state, or in a neighboring state, can help you save money. However, most local and state governments have laws in place dictating that car buyers must pay sales tax on a new vehicle based on their state, county and city of residence. Such laws are designed to prevent car buyers from purchasing vehicles at dealerships where lower tax rates are in effect in an effort to protect local businesses and government budgets.

If you are considering buying a car from an area outside the one you live in, be sure to carefully examine all potential tax benefits and determine any hidden tax pitfalls resulting from the deal. Also, remember that taxes are based on the selling price, so choosing a less expensive car can lower the amount paid in tax.

Tax Credits

Plug-in hybrid models and electric vehicles cost more to purchase, but they are also eligible for national, state and local tax credits. These tax credits, combined with lower operating costs, are designed make a hybrid or electric vehicle as cost-effective to own as a conventional gasoline vehicle.

To illustrate, consider the 2013 Ford Fusion. It is offered with gasoline powertrains, a gas/electric hybrid powertrain and a plug-in gas/electric hybrid powertrain with 21 miles of electric range. The plug-in gas/electric version is called the Fusion Energi.

The 2013 Ford Fusion Energi Titanium carries a base price of $40,995, while a standard Fusion Titanium starts at $30,995. Apply the $3,751 federal tax credit to the Energi Titanium and the price effectively drops to $37,244, leaving a price premium of $6,249.

Combine the tax credit for the Fusion Energi with its 43-mpg combined fuel economy rating (compared to the Fusion Titanium model's 26-mpg combined rating) and the added cost for the Fusion Energi Titanium is amortized over 8.3 years* at current average fuel prices -- and that doesn't factor in the car's 21-mile electric-only range. The more time a Fusion Energi's owner spends driving on electricity as opposed to gasoline, or the higher gas prices climb, the sooner the added cost of the car is amortized.

* Based on an average fuel price per gallon of $3.29

State Registration and Licensing Fees

Each state sets its own registration and licensing fees. Often, these fees are the same regardless of the type of vehicle that is registered and licensed. However, in some states, the fees can vary dramatically depending on a variety of factors, including the vehicle year, purchase price, taxable value, weight, the owner's driving record, whether or not the car has a lien against it and the owner's county of residence.

For example, in Arizona, residents are charged $8 for license plates ($8.25 in Phoenix and Tucson), plus a $1.50 air quality research fee and a vehicle license tax assessed at 60 percent of the vehicle's original manufacturer's suggested retail price, which the state reduces by double-digit percentages each year as the car ages. Neighboring Nevada charges a flat $33 fee for plates. As a result and with regard to licensing, Nevadans need not consider the price of a new vehicle as a part of their budgeting process, while Arizonans can save money by choosing a less expensive model.

Source: National Conference of State Legislatures

Insurance Premiums

After a car's purchase price, one of the most expensive elements of vehicle ownership is car insurance. Car insurance premiums are dependent upon numerous factors, including the car owner's driving record, age, marital status and whether he or she is retired. Additionally, insurance premiums are calculated based upon the car owner's area of residence, whether or not the vehicle is garaged at night and the number of miles the vehicle is driven annually.

Insurance companies also charge different premiums depending on the type of vehicle to be insured. Insurance premiums vary between different makes and models, and are even variable between body styles and trim levels of the same model. Typically, the more expensive and performance-oriented the vehicle, the more expensive the insurance becomes.

Insure.com offers a handy tool that allows consumers to research and compare average insurance rates for more than 750 vehicles. It also provides a list of the 20 most and least expensive models to insure. Let's compare three popular 2013 midsize family sedans with 4-cylinder engines: the Honda Accord LX, the Nissan Altima 2.5S and the Toyota Camry LE.

According to Insure.com, the Accord costs $1,353 annually to insure, the Altima $1,480 and the Camry $1,370. What happens if a consumer chooses the available V6 engine for the Camry? The annual premium rises to $1,521.

To illustrate the effect of more expensive trim levels on insurance costs, let's look at the 2013 Chevy Cruze. The base LS model costs $1,282 annually, according to Insure.com. Step up to the LT model and the premium rises to $1,326 per year. The top model, the Cruze LTZ, costs $1,357 annually.

When deciding which model to buy, consumers must first investigate the cost to insure the vehicles under consideration. Even after choosing a model, it is advisable to investigate insurance rates between the different trim levels to make the best financial decision. Also, don't forget that to help save money on insurance, a car owner can increase the amount of the deductible for the policy. The deductible is the amount of money the car owner will pay for repairs and expenses before the insurance company starts to pay.

Fuel Economy Ratings

If the past decade has taught us anything with regard to gas prices, it is that they are unstable. They rise, fall and rise again, sometimes by substantial amounts. Whenever gas prices rise, motorists complain and act as if they are surprised. They shouldn't be.

According to GasBuddy.com, a website that helps people find the least expensive gas prices in their local areas, the national average for a gallon of regular unleaded fuel is $3.29 as this article is written. Residents of Wyoming are paying an average of $2.79 per gallon, while Hawaiians are shelling out $4.08 per gallon. Because moving to Wyoming is an unlikely prospect for most people, consumers must carefully weigh their options when buying a vehicle, calculating the savings offered by alternative powertrain choices or the costs associated with upgrading to a larger and more powerful engine.

Let's illustrate using the 2013 Volkswagen Jetta as an example. The Jetta is sold with a conventional gasoline engine, a turbocharged engine that requires premium gas, a turbodiesel engine and a new gas/electric hybrid powertrain.

A 2013 VW Jetta SE equipped with a 2.5-liter 5-cylinder engine and an automatic transmission costs $20,910. The combined fuel economy rating is 26 mpg, which translates to an annual fuel cost of $1,898.08 when the car is driven 15,000 miles per year.

The 2013 VW Jetta GLI is equipped with a turbocharged 2.0-liter 4-cylinder engine and is priced at $25,840 with an automatic transmission. It's combined 27-mpg fuel economy rating produces an annual premium unleaded fuel bill of $2,016.67.

If you choose a 2013 VW Jetta TDI with a Clean Diesel engine and a Direct Shift Gearbox (DSG) transmission, the window sticker reads $24,950. The combined fuel economy rating is 34 mpg, resulting in $1,720.59 in annual fuel pump receipts based on the price of diesel at the start of 2013.

Finally, the new-for-2013 VW Jetta Hybrid is equipped with a hybrid powertrain rated to get 45 mpg in combined driving on premium unleaded fuel. The Jetta Hybrid costs $25,790 and burns $1,210 of gas annually.

It will take 7.1 years of driving for the Jetta Hybrid's superior fuel economy to make up the difference in sticker price between it and a Jetta SE, based on the current average price per gallon of gas. That's much better than the 22.8 years it will take before the Jetta TDI model's price premium pays for itself, based on diesel prices as this article is written. However, because the prices of diesel and unleaded often fluctuate, and diesel is sometimes less expensive than unleaded, the Jetta TDI remains a viable alternative.

Source for average unleaded fuel price: GasBuddy.com

Source for average premium unleaded fuel price: AAA Fuel Gauge Report

Source for average diesel fuel price: AAA Fuel Gauge Report

Maintenance and Repair

Modern cars do not require as much maintenance and repair as older vehicles did when they were new, allowing many automakers to increase warranty coverage and offer free scheduled maintenance for a limited period following purchase. There is genuine value to car buyers in long warranty programs and free service, and each ought to be considered when choosing a make and model.

To illustrate, consider the 2013 Audi A4 2.0T ($33,395). The A4 is offered with a 4-year/50,000-mile warranty and one free scheduled service visit within the first 12 months or 5,000 miles of driving. According to Kelley Blue Book (KBB.com), the 5-Year Cost to Own figure for the Audi's maintenance and repair is $7,637.

A 2013 BMW 328i ($37,745) includes a 4-year/50,000-mile warranty and free scheduled maintenance for the duration of that period. KBB.com says the 5-Year Cost to Own amount for the BMW is $5,360.

Though the Audi costs $4,350 less to purchase in base trim, it also costs $2,277 more to maintain and repair during the first five years of ownership compared to the BMW. Further erasing what at first might appear to be a substantial price advantage for the Audi, BMW is about to debut a new 320i model with a base price of $33,445.

People who keep cars for a long time will also want to do research pertaining to a model's long-term projected maintenance and repair costs for when the original warranty protection expires. Good sources for this information include KBB.com and RepairPal.com.

Generally, it is better to buy a car with a longer warranty to protect against large repair bills in the future, and to choose a model that will be less expensive to maintain and repair. Selecting a model covered by a free scheduled maintenance program is less important, but it does ultimately save car buyers money if the purchase price between two models is otherwise similar.

Depreciation

Depreciation refers to the amount of value a vehicle loses each year following purchase, and it impacts car buyers when they decide to sell the vehicle. Some models hold their value better than others, effectively lowering the total cost of ownership when the owner elects to sell.

Let's look at three popular compact sedans in base format: the Ford Focus S ($16,995), the Hyundai Elantra GLS ($17,760) and the Toyota Corolla L ($17,025). According to KBB.com, the Elantra will depreciate $9,952 over five years, the Corolla $9,966 and the Focus $10,610. After half a decade, the Focus loses 62.4 percent of its value, the Elantra loses 56 percent of its value and the Corolla loses 58.5 percent of its value. So while the Elantra is more expensive to buy, it also holds its value better than competitors from Ford and Toyota.

Because choosing a model that retains more of its original value ultimately puts hundreds and thousands of dollars back into a car owner's pocket at the end of the ownership cycle, knowing a vehicle's expected depreciation rate is an important consideration.

Summing Up

Many car buyers focus primarily on price and payment when buying a new car, but there are several additional factors that can impact the overall cost of owning a vehicle. When deciding between different models or trim levels within a model series, it is important to consider these variables when determining which vehicle best fits your budget.

author photo

Christian Wardlaw is passionate about the cars, trucks, and SUVs people actually buy, not the models about which they fantasize. An industry veteran and former editor-in-chief of Edmunds.com, this father of 4 loves to inform and entertain everyday car buyers.

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