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Smart Calculations: Understanding the Total Cost of Buying a Car

As you're considering the purchase of a car, you're likely figuring out the costs involved with it. At first glance, however, you might think that this purchase will cost much less than it actually will amount to. Before heading to the dealership, craft a more detailed list of all of the costs associated with buying a car.

The Initial Payment

If you're planning to buy your vehicle, you'll need to make an initial payment. Buying the vehicle outright means that you'll pay the full sticker price of the car the day that you go to the dealership. Another option is to finance the vehicle, so you'll need a down payment to put on the car. In the event that you're leasing a car, you may need to make a down payment, or you might have the option to put zero down.

The amount of down payment you should save up depends upon the total cost of the car that you wish to purchase. In other words, a more expensive car is likely going to require a higher down payment. Factoring in the opportunity cost of buying a car can help you to determine if you want to buy the vehicle outright or finance or lease it.

total cost of buying a car

Your Current Vehicle and Junk Cars for Cash

What you're planning to do with your current vehicle, if you have one, also affects how much the new car will cost out of your pocket. For example, you might trade in your current car to offset some of the down payment. You may also choose to keep your current car because your household is in need of another vehicle.

Another option is to look into entities offering cash for junk cars if your current vehicle is in bad shape. You can take the money from this sale and put it in the new car.

Monthly Payments

Financing or leasing the car means that you'll need to pay a certain amount each month. Finance agreements typically do not extend beyond six years. In other words, you will need to pay the full cost of the car within those six years, and the payments will be divided up monthly.

Many lease agreements typically end within three years. However, with a lease, you are not paying the full price of the car over the life of the agreement.

 total cost of buying a used car

Interest Rates

As you're calculating your potential monthly payments and the total cost of buying a car, do not forget about the interest rates. The interest rates are in addition to your monthly payment. Interest rates vary based on more than one factor; however, your credit scores do play a role. For example, in the event that you have low credit scores, you may have higher interest rates on your finance agreement because you are more of a financial risk to the dealership.

If you have some time before you truly need a new car, you may want to think about working on improving your credit scores. When you need a new car rather immediately, ask the representative at the dealership if you can refinance your monthly payments at a later time for a lower interest rate once your credit situation improves.

Warranties, Service Contracts and Other Fees

Before you agree to any purchase and sign any paperwork, you want to make sure that you know what you are committing to. In your conversations with the representative at the dealership, ask about any warranties or service contracts and how these features could factor into your monthly payments. You also want to ask about any other fees associated with buying the car. By asking now, you won't be surprised when you hand over your credit card.

 total cost of buying a car calculator

Type of Car

The type of car that you want is going to play a significant role in the costs. You can use a total cost of buying a car calculator to determine approximately how much any specific vehicle might cost you. Of course, the make and model of the car are important to evaluate here. Still though, you must pay close attention to whether you want a brand new vehicle or a used car.

The cost of buying a used car is typically lower than the cost of buying a new car. Of course, do look at the total cost of buying a used car. In other words, the new car will almost certainly have a larger sticker price attached to it, but you may very well not need to spend as much in repairs on a new car as you would on a used car.


Purchasing insurance on the car is crucial. The cost of your insurance is going to depend upon a number of factors, such as the specific vehicle itself and your driving record. A smart idea is to call the insurance company while you are at the car dealership to get a quote on the price for your new car. By doing so, you can calculate exactly how much this car will cost you per month before you agree to purchase it.

Repairs and Services

Some cars do come with service plans. For example, if you are leasing a vehicle, you may be entitled to complementary services, such as oil changes, for a period of time. Of course, you need to confirm this information before signing the agreement.

Regardless of what plan you choose, you need to keep in mind that cars come with costs for their lifetimes. Also, if you live in a community where you need to pay to park, you have to take those costs into account.

Buying a car is a process that involves a number of financial factors. Before you make the commitment, you want to fully understand all of the elements that are involved.