If you could earn $1,000 or more for a few hours of work, chances are you'd do it. When you spend some time researching your car options, you can easily save that much or more on your next purchase. Key topics to research include reliability, safety, pricing, and depreciation.
The first step is to check the reliability of the vehicles you're considering. The best option for car research is Consumer Reports. They may not share your taste in cars. Still, they offer a great deal of unbiased data gathered from thousands of sources on car reliability. No one wants to spend money on repairs or hours at the repair shop, so some research here is well worth it. And if you haven't shopped for a car in a while, you may be surprised at what you'll find – who would have known that Consumer Reports considers Buick more dependable than Honda?
Next, you'll want to investigate safety. Your car's job is not only to get you to your destination but also to protect you on the way. The Insurance Institute for Highway Safety crashes dozens of cars per year. It offers detailed assessments of each car's performance in various crash scenarios.
Pricing is another critical topic to explore since the prices people actually pay may differ from the sticker price for a new car or the asking price for a used car. Internet searches are the best way to find the average cost paid for each model and whether the manufacturer offers dealer incentives to lower your costs.
When buying used, many factors can influence price, but the best resource is the official National Automobile Dealer Association (NADA) Guide. Most libraries have a subscription to this service, and it offers retail, loan, and trade-in values that both dealers and banks use. If you're in a hurry (which is very un-slow car buying, by the way), Edmunds.com offers a True Market Value (TMV) calculator with accurate pricing based on recent purchases in your location.
When narrowing down your choices, another essential factor to consider is the total cost of ownership. When shopping for a car, most people think only about the sticker price. But the cost of owning a car includes many other expenses – from fuel to depreciation – in addition to the sticker price. The total of all of these expenses goes into the cost of ownership, and the figure can be a big surprise.
Take depreciation – according to US News and World Reports, the difference between the fastest and slowest depreciating cars is staggering. For example, the owner of a 2012 Chevrolet Impala lost over 63% of the sticker price over five years. On the other hand, the owner of a Nissan Frontier lost just 22.5% over five years. In other words, the Impala owner lost $4,000 per year on a $33,000 purchase, whereas the Frontier owner lost just $1,200 per year on a $27,500 purchase.
Let's calculate the total cost of ownership on a hypothetical $20,000 new car (of which $15,000 is financed for 60 months at 15% interest) over five years.
- Cost of car: $20,000
- Sales tax: $1,400
- Excise Tax: $1,200
- Financing Cost: $6,411
- Registration/Yearly Inspections: $250
- Maintenance and Repairs: $3,500 (could vary dramatically depending on the car)
- Car Insurance: $4,000
- Gas: $14,400 (one $60 tank per week)
- Total Expenses: $51,161
Value of 5-year-old car: $9,500 (purchase price minus $10,500 in depreciation)
Total Cost of Ownership: $41,661 ($51,161 in expenses minus $9,500 remaining car value)
Needless to say, researching all of your options is the best way to avoid financial surprises both before and after making your purchase.
