Once you have determined what you can spend each month to own that new car and you’ve determined your credit rating, you can begin figuring out which vehicles fit your budget. At AutoLoanDaily you can search by make and model or price. This will bring up photos, specifications, options and other details of all models available in the United States.
We won’t spend much time here on how to research the quality of vehicles. There are a many Web sites that can help you with that. Consider subscribing to Consumer Reports for a year. For $26 you get access to their independent consumer testing and research information complete with ratings on reliability. Consumer Reports accepts no advertising, uses its own staff to test cars and write reviews and surveys thousands of members annually about the reliability of specific cars.
What we do want to address here is how important it is to make sure you understand the difference between the price dealers advertise and what you will end up paying to buy the car. The difference can easily reach $2,000 and bust your budget.
One reason depreciation is so steep in the first year of owning a new car is because of one-time costs that jack up the purchase price and can never be recovered. These include dealer destination fee ($300 to $600), state sales tax (up to 9.35%) and DMV fees like title (up to 1.5% of purchase price). These are the costs that dealers usually footnote in their newspaper ads by saying “Price does not include taxes, tag and title…”
It’s critical that you anticipate these costs and then ask yourself whether you can still afford the car. If not, you need to lower your expectations a notch or two.
This is why we began this series of articles with the essay on budgeting. If you want to avoid getting in over you’re your head, it’s critical you have the discipline to live within your budget.
Here are the steps for calculating total price out the door:
1. Sales tax: Find out what your local sales tax is by asking a dealer or calling your local tax office. Be aware that sales taxes vary depending on where you live. In most places there is a state sales tax, a county sales tax and sometimes a local sales tax. You must add all three to determine what taxes are due on the vehicle. Once you determine the applicable sales tax, convert it to a decimal point and multiply it times the purchase price of the vehicle. This is the sales tax that will be added onto the price you pay for the car.
For example a sales tax of 7.25 percent would convert to a decimal point of .0725. Multiply that times $28,000 and your sales tax is $2,100. Not exactly chicken feed.
2. Destination fee: The dealer charges this to recover the cost of transporting the vehicle to their lot.
3. Title and other DMV fees: This varies from state to state but includes title and registration fee.
Now you can add the advertised price, sales taxes, dealer destination charges and DMV fees to get a more accurate estimate of what you will be paying for the car.
For instance, let’s say I’m buying a 2008 Nissan Pathfinder LE, 2WD in Charlotte, N.C. Here is how I would calculate the total purchase price before incentives.
- Advertised price: $31,309
- Options: none
- Destination fees: $300
- Local sales tax: 7.25 % or $2,270.
- DMV fees: $75
- Total: $33,953
This number, and not the price advertised by the dealer, determines how far your cash will go and how much you may end up financing. Now you are ready to shop for a loan.