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"Dream Vehicle" Costs Help Keep You in the Driver's Seat
Understanding the true cost of your dream vehicle may be the best
way to stay in the driver's seat as you search for a purchase that
reconciles your desires with your pocketbook.
Most buyers don't recognize that the sticker price of a new vehicle
is just one element of its total cost. A vehicle's overall impact
on your long-term budget will depend on loan terms, operating expenses,
insurance, rebates, and even supply and demand. These factors can
increase the cost of the car even as they decrease its value, sometimes
before it leaves the dealer's lot.
Higher price tags
The monthly payment for a 60-month vehicle loan on a fully financed
$40,000 purchase at an interest rate of 4.5% will be $746, although
experts say higher interest rates quickly can push payments up.
For example, a 7% interest rate results in monthly payments of $793.
That's a difference of $2,820 over the life of the loan. You can
figure out the cost of your monthly payment by using this payment
calculator.
A Telesis Community Credit Union loan officer can help answer your
questions about purchasing a vehicle. Generally, experts advise
buyers to avoid spending more than 15%
to 18% of their monthly income on total vehicle costs.
The sticker price is just the beginning of these costs:
-
The
sticker price typically excludes some costs such as extended
warranties, dealer handling fees, "protection packages"
of sometimes dubious value for services such as "invisi-shield,"
title fees, and state sales taxes, where applicable.
- The
cost of insurance is likely to rise with the cost of the
vehicle, especially if the model is deemed more likely to
be stolen or involved in an accident. Ask your insurance
agent for a quote.
- Gasoline
costs are another ongoing expense, especially on larger
models with high gas consumption and in the face of rising
gas prices.
- Opting
for a global positioning system (GPS) to obtain directions
or roadside assistance can create an additional monthly
charge once the free trial period ends. The same is true
for various satellite radio services.
- Many
owners also are unaware of the higher costs of routine service
and repairs for luxury cars, which sometimes can cost twice
as much to service when compared with more mundane vehicles.
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Longer terms
Some buyers attempt to manage the cost of high-end vehicles by extending
the term of the loan. Sixty months was once the longest term offered
on standard vehicle loans, but many lenders now offer extended terms.
However, increasing the length of the loan also may contribute to
the problem of being "upside down" in an automobile loan.
"Upside down" buyers owe more to the lender than the
vehicle is worth. This can occur because the buyer has little or
no down payment, the term of the loan is so long that the vehicle
depreciates faster than the buyer accrues value through payments
on the principal, the manufacturer offers rebates that reduce the
vehicle's resale value, or because the popularity of a new vehicle
model creates an oversupply in the used market.
Comparing cost and value
Understanding the difference between a vehicle's cost and its market
value can help a buyer prepare for the consequences if the vehicle
is damaged or stolen.
Remember that once a new auto is purchased, it immediately becomes
a used auto and loses significant value the minute you drive it
off the lot. A buyer whose car is damaged in an accident or taken
by thieves may discover that the amount they owe on the loan is
thousands more than their insurance coverage, which typically is
based on the vehicle's current market value. Many credit unions
sell guaranteed
automobile protection (GAP) insurance to cover the difference
between the amount paid by insurance and the amount owed to the
lender.
Exploring options
If the true cost of driving your brand-new dream car appears to
be too much for your budget, check into other options. Telesis credit
union offers Autoland,
an auto buying service that can help you get the best deal available.
Used vehicles can provide an attractive alternative, especially
because rapid depreciation on many luxury cars helps create good
deals on used cars. Low-mileage used vehicles that are "certified"
by dealers often include warranties that cover many repair costs.
Whatever route you take, experts agree that doing your homework
will pay off. For example, understanding the trade-in value of your
used car helps you negotiate a fair price with the dealer. Meeting
with a Telesis Community Credit Union loan officer and contacting
an Autoland consultant will help you decide how much car you can
afford, obtain a competitive interest rate, and prequalify for a
loan.
Related
Links
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Loan Rates
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