Tapping the Brakes on Car Costs

Jan 26, 2024
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The average cost of a new car is enough to give most people sticker shock: $48,759. Nearly 80% of new-car buyers finance, borrowing an average of $40,000, according to credit-reporting agency Experian. As of late 2023, the average payment for a new car hit $726, as rising interest rates have driven payments higher. The average length of a new-car loan was just shy of six years.

Amounts borrowed for used cars are lower — roughly $27,000 on average — but the loan term is about the same: just under six years. The average monthly payment for a newly purchased used car was $533 at the end of 2023.

For many people, monthly car payments are one of the most significant expenditures in their budget, second only to a home mortgage. Of course, auto-related expenses go well beyond servicing a loan. Operational costs (gas, maintenance, repairs) also take a toll, as do taxes and insurance.

It’s impossible to cut auto expenses to the bone, but you can “tap the brakes” on costs — and generate significant savings over time — by following these nine suggestions.

1. Break the cycle of financing. If you’re making payments on a car or truck, determine that this will be the last vehicle you finance. Once your loan is paid, keep making “payments” — but send them to a savings account instead of a lender!

Resolve to keep your current vehicle as long as it takes to save enough to buy your next car with cash.

2. Buy the most reliable vehicle you can afford. An “affordable” car is one you can purchase with cash while still leaving enough in savings for an adequate emergency fund. That likely means you’ll be buying a used vehicle, but it doesn’t necessarily mean you’ll have to sacrifice quality or safety. Many used vehicles are well-maintained and carry a dealer (or manufacturer) warranty. A starting point for finding a dependable vehicle is Consumer Reports’ recent report titled “Best Used SUVs, Sedans, and Small Cars.” (Note: Access to the article requires membership — a one-month membership is $10.)

3. Research market pricing and availability online. Reliable sources of vehicle-value information include edmunds.com, jdpower.com, and kbb.com (Kelley Blue Book). For availability, search offerings (from dealers and private sellers) at cargurus.com, autotrader.com, and ebaymotors.com. Also check truecar.com (pricing information from 10,000 “certified dealers”), costcoauto.com (pricing from 3,000 “approved dealers”), and carfax.com. If you prefer no-haggle pricing, visit carmax.com and carvana.com.

Buyer beware: To pique your interest, some used-car dealers may advertise prices online that are substantially less than prevailing market values. However, contract prices may include various fees running into the hundreds or even thousands of dollars. If you’re interested in a car listed at a price lower than market value, email the dealer asking for an itemized list of all charges included in the sales contract. Be prepared to walk away from any deal padded with questionable add-on charges. 

4. Consider a “certified pre-owned” car to keep future maintenance costs down. CPO cars, available only from automaker dealerships, are reconditioned late-model vehicles that are still under factory warranty. CPO vehicles tend to cost more than other used cars but have relatively low mileage and are typically less than five years old.

“Dealer certified” cars are another option. As with CPO vehicles, these cars are reconditioned and inspected but carry a dealer or third-party warranty (a “vehicle service contract”) rather than a manufacturer warranty.

5. Investigate a vehicle’s history. A report from Carfax ($45), AutoCheck ($25), or Bumper ($1 for a 7-day trial) will tell you if a vehicle has been in an accident or used as a rental. (To get a report, you’ll need to supply the car’s Vehicle Identification Number.) Many dealer websites provide a vehicle history report for free.

The website of the National Insurance Crime Bureau has data on whether a car has been reported stolen, damaged, or deemed a total loss by an insurance company that paid a claim on it. Also check with the National Highway Transportation Safety Administration to find out if a vehicle has been subject to any recalls.

6. If buying from a private party, take nothing for granted. Buying a used vehicle from an individual lowers your upfront cost but raises your risk. It’s an “as is” deal without any guarantee, certification, or warranty. To protect yourself, ask to look at all repair records and arrange for a mechanic to inspect the vehicle. Companies such as LemonSquad and Wrench will send a mechanic to where the car is. Expect to pay about $200 for such an inspection.

7. Consider all the costs. The purchase price is only one part of the car-buying equation. As the table below shows, similarly priced vehicles can vary widely in operational costs.

Edmunds has an online “True Cost to Own”® tool that provides projections of ongoing costs. For refined insurance estimates, contact your insurance agent. For additional fuel-efficiency information, go to fueleconomy.gov.

8. Once you buy a vehicle, keep it maintained. If taken care of, today’s vehicles can last a long time. Budget for regular maintenance ($150-$200 per month is a good ballpark figure) and spend the money to prevent more-costly repairs down the road. A website that can help you remember when maintenance is due is repairpal.com.

9. Conduct an attitude check! Avoid the worldly thinking that a particular make-and-model car is a source of pride or a badge of success. As Scripture reminds us, this world is not our ultimate home (Hebrews 13:14, Philippians 3:20). We are wise to hold the things of this world loosely, viewing them as tools, not treasures.

Remember, too, that excessive car-buying and ownership costs can slow your progress toward achieving other financial goals, such as increasing your giving and saving for retirement. Reining in your car costs can help you accelerate toward more important milestones.

Written by

Joseph Slife

Joseph Slife

Joseph Slife has been a news writer for the Associated Press, a college instructor, and a radio host. He and his wife Joye have three grown sons.

Matt Bell

Matt Bell

Matt Bell is Sound Mind Investing's Managing Editor. He is the author of five biblical money management books and the teacher or co-teacher on three video-based small group resources. His latest book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management, was published by Focus on the Family in 2023. Matt has spoken at churches, universities, and conferences throughout the country and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

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