Price a year of running the car before you buy it

The number on the window and the number on the loan quote are not the price of the car. They are the two bills you can see before you sign. The ones that come later, with no one at the desk to explain them, are insurance, fuel, registration and the repair that nobody scheduled.

Before you decide on a car, add up a year of owning it — the loan payment, insurance, fuel, registration and a repair fund — and buy it only if the total fits your budget.

The US Consumer Financial Protection Bureau makes the same point about loans. It says it is tempting to work out a monthly payment from the price alone, but that this leaves out the interest rate and APR, taxes and fees, optional add-ons, auto insurance and ongoing maintenance. Many people say the real cost of a car is upkeep and repairs, and that it can be far higher for a luxury car or an older one. Some people add that the other running costs (insurance, gas, registration and taxes) can cancel the saving from a cheaper payment.

This page is for someone deciding, not someone who already signed. If you need a car and have little choice, the yearly total is a way to choose among the cars you can afford, not to talk you out of one.

The luxury car with the ordinary price

Some people warn about one trap in particular: a used luxury car that costs about as much as a new ordinary one. The price looks affordable, but you still own a high-value car, and its parts are priced to match. One person says repairs on luxury cars can run far above what the same repair costs on an ordinary one, and some people say luxury cars forgive neglect less than ordinary ones, so a skipped service turns into a large bill. One person says the diagnostic tools for modern luxury cars can cost several thousand dollars, which makes repairing one yourself impractical. Some people also say a buyer must be able to pay for the upkeep as well as the purchase, and put it as a rule of thumb: if you could not afford two of that car, you cannot afford one.

There is dissent, and it is worth having. One person says they owned three cheap used luxury cars that cost almost nothing to maintain, and another says a dealer’s oil change can cost about double an independent shop’s. Some people say an independent garage staffed by ex-dealership mechanics can charge far less, though you may get no loaner car and a longer wait. One person says a luxury model built on an ordinary maker’s platform can cost less to keep up than other luxury cars, because the parts are shared. None of this tells you what your car will cost. It is a reason to ask for a repair-cost estimate for the specific model, and to find a mechanic you trust, before the purchase and not after it.

The loan length

The US Consumer Financial Protection Bureau says a shorter loan term costs less overall, and that a longer one lowers the monthly payment but means you pay more interest. In its own example, a $20,000 loan at 4.75 percent comes to $597 a month and $1,498 in interest over three years, and $320 a month and $3,024 in interest over six years. Some people say a loan of seven or eight years keeps you in debt longer than you need to be, and some say that financing for 84 months is a sign the buyer cannot afford the car. One person warns that a high car loan can end in bankruptcy; another says it is fine if you keep your savings and keep paying your other debts, and neither case is settled by the car alone. One person’s rule is harder: a car you cannot pay for without borrowing is a car you cannot afford. That rule is theirs; the bureau’s page is about shopping for the loan carefully.

If you still owe money on your current car and owe more than it is worth, the bureau says a dealer or lender may offer to roll the balance into the new loan, but that this makes the new loan more expensive. If a dealer promises to pay off your old balance, check that it is not folded into the new loan or the final contract. One person adds that a job you have just landed may not last, so a long debt for a car that loses value is a risk to price in. Read every detail of the contract; the bureau says to refuse a form with blanks left in it, and that the loan disclosure states whether you can prepay without a penalty.

New or used

Some people say a new car loses value so quickly that you can owe more than it is worth; others say that if you plan to keep one for ten or fifteen years, the early drop stops mattering and buying new means you control the maintenance from the start. The two views are set out side by side at the end of the page; whichever you land on, run the sum above for both cars. One person points out that a car is something you buy and use, not something that earns.

When the wanting is the problem

Some people say that when you want a new car because the current one looks or feels tired, a professional detailing is a much cheaper way to meet the same feeling. One person suggests waiting three days, three weeks and three months before a big purchase, and buying only if you still want it. And one person describes the pressure to buy an expensive car after a first good salary.

Whether to spend on a nicer car for the joy of it is a values question, and people split. Some say a car should be kept minimal and the rest saved. Others say that once your essentials and savings are covered, a car you love is a fine use of money and needs no shame. This page does not choose between them; the sum above only tells you which one you can afford.

Cheap and old: the crash question

Some people warn that older cars protect you less in a crash, and one person says their life is worth more than the saving. Another says cheap cars get you from A to B. In the US, the National Highway Traffic Safety Administration lets you look up its 5-Star Safety Ratings by year, make and model at nhtsa.gov/ratings; it notes crash safety has advanced over time. For a used car, one person suggests going to a well-reviewed neighborhood mechanic, not a quick-lube chain.

Who this page is not for

If you are already holding a loan that is underwater, this page is not about getting out of it; your lender or a nonprofit credit counselor is the start, and the page on this site about a repair that costs what the car is worth may help. If you are an enthusiast who has decided and budgeted, the sum is a check, not an argument. And outside the US, the loan rules here are not yours.

When the loan is finally paid, some people say to send the freed-up payment to savings automatically. The payment ends. The room it made in your month can stay.