Car Research

It is important you research multiple aspects of your purchase. Let’s assume you want a specific type of vehicle already, such as a coupe or SUV and are beginning from there. Your objective as a buyer is finding your desired vehicle type within your 15% transportation budget. All car research begins there. The first step is identifying the MSRP and invoice price of the car you want. You will use the MSRP to estimate the loan value of the car.

Budget Based Research

You will need four estimates. The first is the trade in value of your car. For most vehicles value estimates are easily found via Edmunds.com, Consumer Reports, or Kelly Blue Book. Deduct 20% of your trade-in vehicle’s estimated value, due to concessions in negotiation. Note that your goal is still negotiating the highest amount for your trade in. The remainder after this is the amount of money you will pay on the car.

Subtract the amount of money you have saved for the down payment from the MSRP after trade in value. You will still negotiate a lower price. The remainder is the loan you will need. This loan must fit within your monthly transportation cost budget. The total cost of insurance, gas and loan payments should be under 15% per month.

The third estimate you need is the insurance premium of your new car. Your insurance rate is based on car type, price, performance, and your personal demographic. The higher your car’s price and the riskier your demographic, the higher your insurance costs will be. A young male driving a sports car will face substantially higher insurance than a middle age female driving a minivan even if they’re the same purchase price.

The last estimate is the average price of gas. The daily cost of gas is well out of your control. Your car’s miles per gallon are within your control. Checking the city or highway estimates of miles per gallon can save you money.  These 4 estimates will total the amount of money you’ll spend on your car without repairs or replacements.

Transportation as Investment

You should view your car as an investment and budget expense before transportation. The vast majority of cars purchased will depreciate heavily over time. Since it’s far more likely to generate losses rather than returns, focus on decreasing losses instead of earning returns. You may be able to earn a positive return depending on the car’s status. Typically, this only extends to antique, rare, or limited production run cars. Many people have earned consistent returns on investment by purchasing and up keeping classic cars. Extensive car research can result in finding vehicles within your price range more likely to appreciate than depreciate over time.

Reliability and Repairs

Your budget estimates cost before repair or replacements, but those are expenses as well. These expenses are fairly accurately represented by the average reliability rating of the car. Higher maintenance costs are more likely with lower reliability scores. Unreliable cars randomly drain your savings over time, and after your warranty expires your losses will increase. Check consumer reports, reviews, and owner surveys to avoid this.

Elaborate systems within your car will result in higher repair costs. Large amounts of non-drivetrain motors or mechanical parts in a vehicle will result in replacement costs. Many cars, especially luxury cars, can have dozens or a hundred motors separate from the drive train. Replacing these systems is expensive.