When purchasing a car, the most effective way to reduce your expenses is to opt for a less expensive model. Modern vehicles are built to high standards, so you don't need to buy the most luxurious option to get a reliable car. This article will guide you through various strategies to minimize your costs, from focusing on the overall price to managing ongoing expenses.
When buying a car, whether new or used, it's crucial to concentrate on the total price rather than the monthly payment. Dealerships and lenders can lower your monthly payments by extending the loan term, but this will cost you significantly more in interest over the life of the loan. According to the Federal Reserve, the average interest rate for a 60-month new car loan was 4.21% in 2021, but extending the loan term can increase the total interest paid substantially (source).
Extending your loan term can also put you in a situation where you owe more than the car is worth, known as being "upside down" on your loan. This can be problematic if your car is totaled, stolen, or if you want to trade it in for another vehicle. In such cases, you would need to cover the difference between what you owe and the car's value out of your pocket.
The expenses of owning a car go beyond the purchase price and financing. There are two main categories of ongoing costs: ownership costs and operating costs.
Ownership costs are fixed expenses that do not vary with the number of miles you drive. These include:
Operating costs, on the other hand, increase with the amount you drive. These include:
You can reduce your operating costs by adopting smart driving habits. The American Automobile Association (AAA) offers several tips for saving fuel:
For more advice on buying a car and to get a complimentary quote on a new or used car loan, you can contact 1-800-Bar-None. This service provides a quick and convenient way to determine how much you may be able to borrow for your next car purchase.
By focusing on the overall cost, understanding ongoing expenses, and adopting fuel-saving habits, you can significantly reduce the financial burden of owning a car.
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