Chapter 5: Counting The Cost
Cost is one of the most important considerations for most
of us when buying a vehicle. The mistake people make is
failing to count the cost of the secondary financial considerations
that affect the affordability of a vehicle. These considerations
include financing, taxation, insurance and upkeep and they
can quickly turn a good purchase into a bad deal. What seemed
affordable when you signed on the dotted line can quickly
become too expensive when these secondary financial considerations
are combined into the equation.
Read this chapter for a look at the issues of financing,
taxes, insurance and upkeep
the cost of financing precisely and don't let it become
intertwined with the price of the vehicle. It is a perfect
tool for the salesperson to use when trying to blur the
- Watch out for low monthly payments. Low monthly
lease payments or low monthly loan payments usually hide
higher actual costs over the long-term. With a lease this
can mean bigger lump-sum fees before or after or a small
mileage allowance. With a loan this can mean a longer-term
loan and a larger amount of debt servicing.
- Find out the interest rate-this is the true price
of any loan. Get on the phone and find out which banks
are offering the most competitive auto loan interest rates
and don't forget the potential value of Credit Unions.
If you are or can become a member of a Credit Union, you
may be in a position to obtain a better interest rate
from them than you can from a bank. The banks in turn,
are usually more competitive than dealership financing.
Again though, this is an instance where knowledge will
get you the best deal. Shop around so that you know you
are getting the best deal on financing.
- Make sure to double-check for hidden fees or restrictions
in your hunt for the best interest rates. Ask the bank's
auto-loan representative to confirm that there are NO
extra fees or payments that may be incurred beyond those
rates you are being quoted.
- Keep in mind the fact that borrowing costs money.
Borrowing less is always the best strategy if you want
to reduce your monthly payments and lower costs over the
long-term. Buy a cheaper vehicle or make a bigger down
- The convenience of financing through the dealership
usually costs money both because of higher interest rates
and buyer confusion. By mixing the details of the car
purchase and the money purchase, the dealer has an added
opportunity to cloud your understanding of what is costing
what. This will undermine your ability to negotiate for
the best price.
Consider the tax benefits of leasing for business vehicles
- With a leased vehicle it is often possible to
deduct more over time than it is for an owned vehicle.
According to some tax systems you can deduct a portion
of the lease payments equal to that portion of the vehicle
usage that is for business.
- For example, if you use the vehicle for business
75% of the time, and your payments are $400/month, you
can deduct $300/per month from your taxable income.
With an owned vehicle, the deduction is a function of
depreciation and it may be less overall than with a leased
vehicle because of a limit on total amount you can deduct.
- For example, a $40,000 car may have a cap of $14,500
on the total amount of depreciation over five years, a
total deduction of $240/month. Leasing that same vehicle,
according to the $300/month example above, would equal
a total deduction of $18,000 over the same period, a difference
Note: It is important to review the current tax
rules specific to your business and location regarding deductions
for business vehicles.
Vehicle insurance can be a substantial portion of your
total vehicle cost. Don't underestimate the impact of this
expense when deciding what vehicle you can afford and remember
that it can go up.
- Don't choose an absolute basic insurance plan
and leave yourself with only pennies leftover after paying
for everything. A minor accident or a ticket can cause
your rates to rise substantially.
Consider the potentially significant impact vehicle choice
can have on your insurance rates due to differences in safety
and theft ratings.
- Get an insurance estimate when you have a vehicle
in mind to buy.
- Lists are compiled showing the annual insurance
rankings of vehicles.
Protect yourself with gap insurance coverage for a leased
vehicle. Gap insurance is often obtainable as a dealer add-on
and it will cover the full cost of the balance of the lease
that you owe.
- Regular insurance may only cover the depreciated market
value of the vehicle that you are leasing and you could
be left with a substantial amount leftover, depending
on the nature of your lease arrangement.
Remember that monthly insurance payments cost extra.
- If you can pay your insurance in a lump sum you will
save money by avoiding the extra charges and interest
inherent in a monthly payment plan.
TIP: When dealers compete for your business -
Compare dealer prices from multiple discount dealers
in your area using Edmunds.
With multiple price quotes you'll be able to get
the best deal on the vehicle you want.
It's the fast, easy and headache free way