Guide to Buying, Insuring & Maintaining a Vehicle | MoneyGeek

Driving a new vehicle (even if it's only new to you) feels great. But before you pick up the keys, you need to know that cars don't really run on gas. They run on money. From negotiating with the dealer to finding financing to keeping up with maintenance, you'll have to make a lot of decisions that can affect your bottom line, for better or worse. Read on to learn the tips, tricks and tools you'll need to keep your car on the road without burning through your budget.

Sample Car Purchase and Ownership Budget
Cost Description Budget
Car Cost Vehicle Purchase Price Average price of a new car in the U.S.: $34,264.
One-Time Costs License, Registration, Title and Tag Fees Depends on the state and vehicle, but new car buyers can expect to pay between 1% and 3% of the vehicle's cost.
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These must be paid in order to obtain a title or operate a vehicle in a given state. Dealerships collect the fees and pass them on to the state or local authority. By charging these fees, the dealership is doing the work the buyer would otherwise have to do themselves at the local DMV.

Destination Fee This fee typically ranges from $700 to $1,000.
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This is the cost for transferring the vehicle to the dealership. Most of the time this is for shipping the vehicle from the assembly plant to the dealership. Sometimes it's the cost of moving a specific vehicle from one dealership to another.

Sales Tax This usually ranges between 5% and 7%.
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In almost all states, the vehicle sale also incurs a sales tax. The exact amount depends on the state, as well as the locality in which the vehicle is sold. A buyer living along a state border can look closely at the sales tax in various areas around them and purchase a vehicle where the tax might be lower.

"Other" fees, such as advertising, prep, floor plan, and additional dealer markup fees Fees vary widely depending upon how badly the dealership wants to sell the vehicle and how far they are willing to go to get additional profit from the consumer.
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X Advertising Fee

Some manufactures charge dealers an advertising fee, and dealers pass that along to the consumer. And sometimes dealers decided to add the fee on their own—in that case, you may be able to negotiate the fee.

Prep Fee

Some dealerships will charge for prepping the vehicle for final sale, such as interior and exterior detailing. This fee is probably not necessary if purchasing a new vehicle, but it might be justified in a used vehicle purchase.

Documentation Fee Anywhere from $50 to $400.
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This is what the dealership charges for processing the paperwork for the sale. These fees might include anything from transferring the vehicle's title to doing a credit check of the purchaser.

Finance Costs Interest charge Depends on your credit score, down payment and the length of the car loan. Interest rates can range from 2% (good credit) to 18% (poor credit).
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Most people are unable to buy a vehicle outright with cash, so they go with financing. The typical time frame for a loan is five years or 60 months. A payment is made each month which consists of reducing the principal (amount owed on the vehicle) and interest (the cost to have the loan). Interest comprises the bulk of the total finance charge.

Prepaid finance charges This usually won't exceed $100 or so.
Maintenance and Operating Costs Insurance The annual cost of insurance is usually between $1,000 and $2,200, depending on the vehicle, driver history and state.
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State laws require insurance for the operation of a vehicle on state roads. The cost of insurance varies greatly depending on where you live, your driving history, your coverage, and your car.

Registration Most states usually charge between $50-$100 per year.
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Most states require registration to be completed every year, with a modest fee paid during each registration. The purpose of registration is for the state to be aware of each and every vehicle operating on its roads.

Emissions and Safety Inspection $50 to $100 per year, where required.
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Annual emission and safety inspections are required by some states to ensure vehicles meet certain minimum emissions and safety standards.

Gas Depends greatly upon usage and current gas prices; however, most can expect to pay about $1,400 per year, assuming 12,000 miles driven per year at $3.00 per gallon of gas.
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The price of fuel is highly dependent on market conditions and region. Also, some vehicles are much more fuel efficient than others.

General maintenance and repair (tire rotation, oil changes, tires, battery, etc) In an average year, such costs can run a couple hundred dollars or more; a bad year with costly repairs can bump that up to a few thousand dollars.
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X Maintenance

A typical vehicle will require regular maintenance such as tire rotation, oil changes, checking fluid levels and topping off as necessary, replacing windshield wipers, brake inspection and engine air filter replacement. When these should be done will vary on the vehicle model, where the vehicle is driven, and driving habits.


Vehicles will inevitably have a broken or damaged part, component or system, necessitating repairs. Some of these can be anticipated to some extent. However, a significant portion of vehicle repairs are unexpected and expensive.

"Hidden" Costs Depreciation The average car loses about 65% of its value over the first five years.
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Depreciation is the loss in value of a vehicle due to its use and the passage of time. Over time, a vehicle is subject to components breaking, damage, breakdowns and other issues.

Incidental Costs Parking For some drivers, this can range from $50 to $500 per month.
Tolls For some drivers, tolls can reach up to $200 per month.

Sources: AAA,,, Consumer Reports, USA Today

New vs Used Cars

So, which is it—a new car or a used car? Here are some advantages and disadvantages to keep in mind.

New Used
Manufacturer's Warranty

Included, and often covers routine maintenance costs and roadside assistance.

Manufacturer's Warranty

May be included if the car has low mileage or is newer. Most warranties stay with the car, not the owner.


Depreciation begins immediately after the car is purchased. In fact, a new car can lose over ¼ of its value the moment it is purchased.


Much of the depreciation has already taken place, and any continued depreciation will usually slow down over time.

Vehicle Features

More likely to have the most up-to-date features, especially regarding safety and convenience.

Vehicle Features

May lack the features of a newer vehicle.

Maintenance Costs

Costs are typically lower and are sometimes covered by the original warranty.

Maintenance Costs

Often higher because the vehicle is aging, especially once the vehicle exceeds 100,000 miles.

Cost of Insurance

May realize savings due to improved or additional safety features, but such savings are often offset by higher comprehensive insurance coverage and theft.

Cost of Insurance

A used car will typically have lower insurance rates than a new car, although it may not be eligible for discounts that are only available with the newest models.

Peace of Mind

Provides the most peace of mind because it's unlikely to break down unexpectedly.

Peace of Mind

Offers less peace of mind, but many used cars are sold with special protections (such as certified pre-owned inspection and certification reports) which can alleviate the fear of buying a lemon.

Purchase price

Buying new is the most expensive option.

Purchase price

Significantly cheaper than new, especially when the vehicle is more than two years old.

Sources: AAA,,, Consumer Reports

Trade-In & Negative Equity Know-How

A vehicle purchase often involves trading in your old set of wheels. Dealerships may promise to pay a certain amount for the trade regardless of its condition. They may also promise to pay off the current car's loan, even if the value of the car is less than the amount still left on the loan. When this happens, your car has negative equity, which is also known as being "underwater" on your car loan. When these deals sound too good to be true, they almost always are.

Understand what happens to your old car loan

Remember, dealerships will not lose money on the deal, so they will find a way to break even, and then some. Two common strategies are increasing the price for a vehicle or adding finance charges to the car loan.

Know the value of the car you're trading in

The best way for you to avoid getting shorted when trading in a vehicle is to research and understand the value of the car. There are several online resources available (see the resources section below) that can provide a good estimate of what a car is worth.

Research interest rates and finance charges

Based on your credit score, you should be able to gain a rough estimate of what kind of interest rate and loan terms you should expect when applying for a vehicle loan. In addition, look up the dealer invoice price of a given vehicle to get a rough idea of what the dealership paid for it. By preparing carefully for the negotiation, a savvy buyer can tell when a dealership is trying to make back its money by charging more for the vehicle or bumping up the vehicle financing costs.

Auto Service Contracts and Warranties

Warranties and auto service contracts can be confusing. Auto service contracts are sometimes called "extended warranties" or "auto warranties," but this is technically incorrect. A warranty pays for repairs of certain defects in a newer vehicle. An auto service contract is a promise by a third party company to pay for any covered repairs during a set period of time.

In practice, both auto service contacts and warranties often cover similar things and usually offer comparable protections. The following chart will help explain some of the differences between the two.

Auto Service Contract

No additional cost. Warranties are included in the vehicle purchase price.

Depending on the amount and length of coverage, auto service contacts cost anywhere from a few hundred to a few thousand dollars.

Additional Cost for Using the Plan


Many auto service contacts have a deductible that the consumer must pay for covered repairs.

Who Offers It

The original vehicle manufacturer

Third party companies, often through dealerships. Auto service contracts are sometimes offered by vehicle manufacturers.

Coverage Time Period

Coverage will begin at the time of purchase and usually ends at a specific time period or mileage point in the car's life, whichever comes first. Three years or 36,000 miles is a common length of time for a bumper to bumper warranty, while a more specific warranty, such as one for the powertrain, will last longer, such as five years or 60,000 miles.

Depends on the contact's terms, but are typically comparable to warranty time windows, such as three years or 36,000 miles, whichever comes first. Auto service contracts covering longer time periods are available, but they cost more.

What It Covers

Usually covers any problems with the vehicle not related to an accident or normal wear and tear. Many vehicles have several warranties, one that covers anything wrong with the vehicle (bumper to bumper) and one that covers only a specific component, such as the transmission.

It can range from full coverage, similar to a bumper to bumper warranty offered by the original manufacturer, to a coverage for specific components, like the transmission or electrical.

What It Doesn't Cover

Most warranties do not cover bumpers, body panels, glass and interior trims. Most warranties also fail to cover items that are intended to wear out over time, such as batteries, tires and belts.

What's not covered depends on the specific terms of the auto service contract. However, exclusions are similar to things not covered by the vehicle warranty, such as parts damaged through normal wear and tear.

When to Purchase

The warranty is automatically included in the purchase price of the vehicle and goes into effect when the owner takes possession.

You probably don't need a service contract if your warranty is still in place.

Service Location

Practically all repairs made under warranty will take place at an authorized dealership service center.

Covered repairs can usually be done at any repair shop of the owner's choice.

10 Tips for the Budget-Conscious Car Shopper

Look for a car that's cheaper to insure

Insurance companies will examine a variety of factors in order to determine insurance rates, including your driving history. Vehicles that are associated with reckless driving or accidents (think sports cars) tend to have higher insurance rates.

Buy a used car

A car can easily lose 10 percent of its value the moment it's driven off the lot. As a result, buying used can save a great deal of money. Look for a certified pre-owned vehicle, or have your own mechanic take a look. And be sure to check the vehicle's history to ensure you're getting a good value and understand any hidden issues (like previous accidents or car recalls).

Boost your credit score

Most buyers will need to finance at least a portion of the vehicle purchase. The higher your credit score, the better the likelihood of a lower interest rate and otherwise more favorable terms.

Look for low maintenance costs

When you add up your interest, taxes and fees, fuels costs, insurance, maintenance, repairs and depreciation, some vehicles cost much more than others in the long run. For example, a small subcompact car can cost under $6,000 a year to own, while a luxury SUV can easily reach more than $10,000. Look up your car on Edmund's True Cost to Own calculator.

Do the research

After narrowing down the vehicle options, figure out the cost of the dealer factory invoice (the amount the dealer paid for the car) and what others in the local area are paying on, the resale value and operating costs. Knowing this information may put you in a stronger position for negotiating. As a general rule, a dealership's asking price will be 10 percent to 20 percent more than the true dealership invoice price (what the dealership actually paid for it after any dealer discounts are applied).

Watch out for unnecessary fees

Some fees will be legitimate, others may not. Don't be afraid to question a fee and ask that it be removed or at least reduced. Certain fees, such as license, registration, title and tag fees are legitimate, but others, such as a prep fee, may not be. If you're not sure, ask the dealership to explain and justify the fee to you.

Order the car you want

If possible, don't settle for a vehicle you have doubts about. If there's no option that matches your wish list, ask the dealership to order the right vehicle. This might cost more in transport costs, but could save money in the long run if you can avoid extra features that you don't need or want.

Shop around

Don't visit just one dealership and accept their price. See what other dealerships offer. This will add to your shopping savvy and give you much-needed leverage during negotiations.

Consider a fuel-efficient vehicle

The savings for a vehicle getting 30 miles per gallon versus 20 miles per gallon is about $600, assuming a $3.00 per gallon gas price and an owner who drives 12,000 miles per year.

Only buy what you need

Sure, it might be nice to have heated leather seats, a more powerful engine, built-in entertainment and chrome wheels. However, do you really need those things or just want them? Know what options are necessary, such as safety features, and what options would just be nice to have.

Sources:, Consumer Reports,,,U.S. News

Maintaining Your New Car

Routine Maintenance

Most cars on the road today have similar requirements for routine maintenance, which includes oil changes, tire rotations, belt replacements, inspections, cleaning and new brake pads. Some vehicles will need maintenance more often than others, and some will be more expensive for the same procedures. This is especially true with luxury vehicles, which often have higher maintenance costs.

Every manufacturer has its own recommendations for when routine maintenance should take place. To find out the schedule, check the manual for your particular vehicle. Remember that even commonly repeated recommendations, such as changing the oil every 3,000 to 5,000 miles, are often incorrect—many vehicles are able to go much longer than that.

Also keep in mind that driving patterns and habits will dictate when routine maintenance takes place. For example, someone who has a daily commute that involves a lot of 'stop and go' driving may have to replace brake pads more often than someone with a commute that requires more highway driving.

Finally, remember that routine maintenance may be required in order to keep the vehicle's warranty valid.

Smog Test

In some states, cars have to meet emission standards to stay on the road. For instance, California has an elaborate system of smog tests that must be done every two years in most counties. However, the newest vehicles may be able to go six years before the smog test is required. Each state has its own requirements, with some mandating yearly smog tests and others no emission tests at all.

Winter Vehicle Maintenance and Safety

If you live in a place where winter means cold and harsh driving conditions, take these steps to make sure your vehicle is ready for the season:

  • Check the tread on the tires and/or install winter tires.
  • Use lighter viscosity oil if that's recommended by the vehicle's manual
  • Top off the windshield wiper fluid. The windshield wiper fluid will be helpful in improving visibility on salted roads.
  • Store the right tools to clear off ice and snow from the car. Brushes and ices scrapers are recommended.
  • Check the battery and make sure it's in good condition. Batteries have less power in cold weather.
  • Assemble a kit with emergency supplies in case you get stranded. Pack it with food, water, emergency blankets, warm clothing, a battery-operated cell phone charger, a flashlight and extra batteries, emergency medications and other items you might need.
Gas Prices

The price at the pump and your car's fuel efficiency rating are definitely things you should think about when choosing a car. If gas prices are high or on the rise, for example, it might make sense to pay a more to get a fuel-efficient hybrid.

One way to find the cheapest gas prices around is to use an app, such as GasBuddy or Gas Guru. One way to figure out how much savings a car owner can expect from a vehicle with improved fuel efficiency is by using a fuel cost calculator, such as one listed below.

Gas Saving Products-Are They Worth It?

The United States Environmental Protection Agency has tested over 100 "gas saving" products, but none of them have lived up to their stated claims.

At best, these products are a waste of money. At worst, they can actually damage the engine or increase harmful emissions. In practice, several other factors will significantly affect gas mileage, such as level of traffic, driving conditions and the car's condition.

Auto Financing and Loans—Knowing the Options

When buying a vehicle, consumers have three primary options: Paying in cash, obtaining a loan or leasing the vehicle.

Leasing is essentially a glorified car rental. The driver will make monthly payments for a set period of time, usually a few years. Once the period is up, the car is returned. There will also be mileage limits that can be relatively expensive if exceeded. One major advantage of the lease is that the monthly payments are often lower than a typical car loan.

The most popular method of buying a vehicle is to get a loan, either from a dealership or a third party lender, such as a bank. From a convenience standpoint, getting a loan from the dealership is nice, but in order to save the most money, buyers can visit a few banks, see what kind of car loan terms they qualify for and find lower interest rates.

In order to get a car loan, buyers will need to provide a host of information to show their credit worthiness. Information includes: proof of income, full name, address, date of birth, social security number and job history.

Car loans can come along with confusing paperwork. Here are some important items to understand:

Amount financed:The total amount of money lent to the borrower

Finance charge: The total cost to borrow the money, expressed as a dollar amount

Monthly payment: The monthly payment includes principal and interest components

Down payment: The lump sum paid toward the purchase of the car to reduce the amount of borrowed money

Co-signer: Sometimes a lender will require a co-signer before agreeing to provide a loan. This co-signer essentially serves as an additional source for repayment if the primary debtor defaults on the loan

Credit score: A calculated number that rates the individual's credit worthiness. The higher the number, the better the terms of the loan

Annual percentage rate (APR): The "cost" to borrow the money, expressed as a percentage

Any vehicle loan will have to comply with many federal and state laws. Most of these laws exist to protect the consumer from predatory lenders. Here are some of the more prominent federal laws:

Consumer Leasing Act: Requires the lender to disclose the interest rate, monthly payments and other key details to the consumer.

Equal Credit Opportunity Act: Prohibits discrimination during the loan application process.

Risk-Based Pricing Rule: Ensures that lenders who charge people more for a loan based on their credit reports must disclose that to them.

Truth in Lending Act: Ensures that consumers receive disclosures about the cost of their loan so they can comparison shop.

Expert Advice on Negotiating Your Car Purchase


Negotiation expert and attorney James Goodnow offers his advice on the art of getting the best deal when purchasing a vehicle:

Come armed with information.

Know how much the dealer paid for the car and check out what competitors are offering.

Make the first offer.

In general, it's best for you to "anchor" the parameters of the negotiation by making the first offer. Dealers will generally not want to bid against their own prices, so don't be afraid to put in an offer at or below the dealer invoice price.

Leave room for a little back-and-forth.

Most dealer negotiations involve offers and counteroffers. It's not unusual for this process to happen three or four times. As a result, leave room in your negotiation for these volleys. It's nice to think that a dealer will cut to the chase, but the reality is, most won't; it's too engrained in the car buying culture.

Never only go to just one dealer.

Find similar cars at multiple dealers to force them to bid against each other.

Create value with options.

You can negotiate extras such as window tinting, stereo upgrades, extended warranties, better financing options or sport packages. These can be particularly effective at bridging a gap or getting through an impasse. Remember, it's not always about dollars and cents.

Go national.

More and more national car companies allow consumers to look for deals from outside of their hometown. Although you need to pay shipping, the cost savings can often be significantly greater than the shipping charges.

Avoid the "let me talk to my manager" trap.

Some salespeople will still play the classic game where they sit you down and say they need to speak with their manager to get authority. This tactic can keep you waiting for extended periods of time. Don't fall into this trap. If the manager's help is needed, then ask to have the manager involved. If they refuse, then you don't have to buy.

Don't be afraid to walk away.

Know your alternatives, and never feel like you have to stay and purchase this car. There will always be other vehicles.

Bring food.

It sounds simple, but it can have an impact. If you're hungry and tired, you're less likely to make a good deal. Don't give in just because you want to have lunch; if you do, that lunch could end up costing thousands of dollars. Pack a lunch, bring snacks and don't be afraid to drive to a convenience store and come back with something more than the food in the dealer vending machine.