I was talking to a co-worker who is in the market for a new car. He and his wife recently had a baby, and their transportation needs are changing. He was telling me that he had narrowed his search down to a couple of different makes and models. I asked him if he had ever checked out the Edmund’s True Cost of Ownership tool that they provide for free.
You see, the price tag that is nice and bright in the spotless window of that new car isn’t what you’re going to pay. That is, negotiation aside, the lowest number of dollars coming out of your pocket to get it off of the lot and into your driveway. Cars are hungry not only for gasoline, but for cash. You may be torn between 2 cars with nearly identical price tags thinking “Do I flip a coin or what?” I don’t suggest you flip a coin, but I do highly recommend checking out this tool.
If you’re looking at a vehicle created in 2010 (at the time of writing) or newer, this tool should have data available for the vehicle you’re looking at.
I did some poking around, and the Honda Accord was just about the #1 selling car in the United States in 2015. That being said, let’s take a look at the base model 2015 Honda Accord as an example.
Arriving at their site (linked below), you can search for the exact make, model, year and trim of the vehicle you’re considering. The example vehicle here is a base model, automatic 2015 Honda Accord.
While you are looking around, it helps to know the going price for similar vehicles being sold to ensure that you’re not getting ripped off. In my area, the average 2015 Honda Accord is going for about $20K. It appears that Honda’s MSRP is a little over $23K so $20K for a (potentially) less than 1 year old vehicle seems about right.
Now that we have the price on the price tag in the lot and the average price being paid in your area, it’s now time to look into all of the costs that certainly not listed on the “FOR SALE” sign. As I was saying earlier, cars love to eat money. Tires, Oil, Filters, Wipers, Brake Shoes, Rotors, Cleaning, Insurance, Tags… and we’re not even done listing maintenance & necessities just to keep a mechanically sound car on the road.
Have you considered how much this car will depreciate? If you choose to take a loan out for a vehicle, you really need to think about this. If it depreciates too quickly, and you can’t afford the payments in a year or two you may not be able to sell it without taking out another loan to cover the difference.
If you have to commute a long distance daily, will this vehicle require a lot of premium fuel that will eat into your paycheck?
Have you called your insurance company and gotten a quote for this exact vehicle and the effect it will have on your insurance? The car may look great, but a $1K hike in your insurance premiums annually may take some of the shine off of that finish.
Here is what Edmund’s reports on the 2015 Honda Accord:
Based on their research, Edmund’s estimates that if you finance this vehicle and keep it for 5 years you will end up paying a little over $27K for it. That is over $6K not being shown on the “For Sale” sign. It’s not a massive amount, but it’s certainly not pocket change for most of us. The idea here is that the dealer absolutely does not care about those “extra” costs, they only want to move inventory. You have to look into this yourself and arm yourself with this knowledge before you make a decision that could potentially set you back financially for a decade. The real power of this tool comes into play when you have several models that you cannot seem to decide on. What you may find is that although both cars have the same base price, one will cost significantly more down the road (pun intended).
In closing, these are just a few things to think about that will not be reflected in the price tag you see hanging in the window of that shiny new car. It’s really important to count the costs before you sign your name on the dotted line otherwise the car you plan to buy may run over your bank account.
Check it out here: http://www.edmunds.com/tco.html