A man smiles as he drives his new car from the dealership after researching hidden costs of buying a new car.

The Hidden Costs of Buying a New Car


As you shop for a new car, it's important to research the car buying process. From dealership fees to maintenance, here are hidden fees of buying a new car.

Are you shopping for a new car, SUV, or truck? If so, you are likely focused on finding something with a monthly payment you can afford. However, if you are solely focused on the sticker price or monthly payment, you might be overlooking several hidden expenses that can leave you scratching your head, wondering where all of your hard-earned money has gone.

Here are a few of the hidden costs of buying a new car that you need to understand.

Financing Fees

When it comes to buying a new car, few people can afford to pay the full price upfront; after all, the average price for a new vehicle is nearly $40,000. That means that you'll likely need to rely on an auto loan to finance the purchase.

When it comes to your car loan, two factors that will significantly affect your monthly payment are your interest rate and down payment.

The down payment lowers the amount of money you'll need to borrow, so the more money you can put down, the lower your payment will be. However, if you qualify for 0% financing or a low interest rate, you might be better off putting down as little as possible and investing more money for retirement.

Most lenders will pull your credit report and check your credit score when determining your interest rate. Higher credit scores signal a lower probability of default and are rewarded with lower interest rates.

The source of your loan can also play an important role. If you ask your local credit union or bank for a quote and you are unhappy with it, you can shop around (don't forget about looking online!) and compare quotes so that you can find the most favorable credit terms possible.

Additional Buying Fees

Depending on the state in which you live or your dealership, there could be several miscellaneous fees that can creep up on you before you can drive your new car home.

Each state handles its title and registration fees independently, so there is a wide range of fees depending on where you live. You won't be able to avoid these fees, so it's important to factor them into your purchase cost. The same thing goes for sales taxes – especially since it's not uncommon for states to have car sales tax rates near 10%.

Some dealerships also charge a paperwork or documentation fee, which ranges from a few dollars to hundreds. Some states limit the amount that dealerships can charge for paperwork fees, so do your research and make sure to question them if they seem unreasonable.

Aside from these fees, you will also be asked if you want to opt into optional service and plans, including but not limited to tire and wheel protection, paint protection, extended warranties, window etching, and even car wash subscriptions.

Within the automotive industry, these add-on services are generally viewed as high-margin products that boost profits, but they might not be the best value for the consumer. Read the fine print to understand what you are getting and the alternatives if you handled those services independently.

Recurring Expenses

Car shoppers commonly take gas mileage into account when selecting a new car, but it's not the only recurring expense that you should be cognizant of as you shop.

Your insurance premiums are a necessary but significant expense; it's vital to understand your policy's expected cost for the vehicle you select. Get a few quotes for insurance online to make sure the car still fits in your budget.

You also need to take maintenance expenses into account. Some makes and models have much higher expected maintenance costs than others. It should come as no surprise that an oil change for a luxury supercar costs more than for a Toyota Camry.

A best practice is to budget for maintenance expenses monthly and set that money aside so that you'll be ready when you have to make a repair.

Does your state require an annual safety inspection? You might be surprised to learn that some states require all cars to receive a yearly or bi-yearly safety and emissions inspection at the owner's expense.

Other Hidden Costs

Did you know that the value of your new car drops the second you drive it off the lot? Estimates show that new vehicles lose 10% of their value during your first month of ownership. This loss in value over time is depreciation, and it's unavoidable.

While depreciation doesn't cost you any cash up-front, you'll end up paying for it if you ever sell your car or trade it in. Many personal finance experts often recommend that consumers purchase lightly used vehicles in order to avoid the initial depreciation.

While there are many hidden costs when buying a car, few are as consequential as the opportunity cost of buying something you can't afford. The opportunity cost is the price of tying your money up and forgoing other opportunities.

Since the average monthly payment for a new car is now nearly $600, having an expensive monthly payment means that a decent cut of your paycheck can't go to other things like investing for retirement.

Most of us need a car to get around, so the car payment isn't going anywhere, but making sure we can afford it and still reach our other financial goals is as critical as ever.

Fully understanding the potential costs and doing your homework to limit the number of surprises will make the entire car-shopping process as pleasant as possible.

While this list of car-related costs is lengthy, one thing that will help you keep track of everything is to shop for and negotiate the purchase of your next vehicle over email, so you have a written record of everything.

At the end of the day, buying and owning a car is a major expense, but the more familiar you are with all of the costs, the more at ease you'll feel when you sign on the dotted line and drive off into the sunset.

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