And, if you don’t know what these hidden costs are, you won’t know how to factor them into your financial planning. So, if you’re thinking about buying your first car, you need to understand all of the nitty-gritty details that will help you determine your affordability. Read on below to learn more about the costs of owning a car.
Vehicle finance charges
As a new graduate, you haven’t yet had the opportunity to build up a strong credit history. This is a crucial aspect when seeking finance to make a big purchase, such as a car. So, your best option is to get financial assistance from a reputable lender who runs a graduate finance for cars programme. The charges from the vehicle finance include factors such as creditworthiness, the amount of down payment, the duration of the loan and whether you’re buying a new car or a used car. These factors also play a role in the interest rates you will have to pay. Buying a new car typically involves higher rates when compared with used cars. And because of this, you need to know how much you can afford before you start shopping around for a vehicle. This is where you can use a car finance calculator to get a realistic idea of how much your cost will be. Remember, transparency is important in finding out how much you can confidently shop for.
Balloon payment
A balloon payment is a lump sum; you will have to pay it back after you’ve completed paying the overall amount of the loan you took from the lender. This is how a balloon payment works; It reduces your monthly instalment so that you can afford it better but adds it to the final balance that must be paid at the end of the loan contract. This is done by deducting a certain percentage and pausing payment on it. Once you make your final monthly instalment, you have to pay back a lump sum of the percentage which was deducted initially. It usually includes interest rates. If this is a route you take, ensure that you know exactly how much the balloon payment is. Unlike a residual value payment, which is calculated according to the value the car would be at the time you make your final payment, a balloon payment is a standard amount. So, save for this lump sum to pay it comfortably at the end or you will need to refinance it and keep paying for a little longer.
Insurance costs
Insurance itself is not necessarily unknown, even to first-time car buyers. However, it becomes a hidden cost when you don’t learn what it covers and what it doesn’t cover. You might end up having to pay cash for the things which are not covered. Know these things from early on. Additionally, there are different types of covers. For example, there’s a comprehensive cover, which is compulsory. But what about the other insurance options such as an extended warranty (for a used car) and maintenance plan.
An extended warranty
A manufacturer warranty covers the damage caused by mistakes that happened during the car’s manufacture. But it only lasts for a certain period. And, while your finance provider might also offer you an extended warranty, it doesn’t cover wear and tear or any damage that was caused. This means that you’ll have to have a plan to cover the costs for such repairs. That’s where maintenance services come in. Be aware that maintenance plans differ in what they cover; some might include the cost of servicing plus general wear and tear repairs. You need to be clear on exactly what the maintenance plan covers, so you don’t have any surprises later.
Delivery charges
These are small charges that you shouldn’t overlook as they add up to a big amount. They include registering the car, the creation of a number plate (maybe even a personalised version), a pre-delivery inspection of the car and more. The best way to handle this is to ask about every little detail from the car dealership you’re liaising with.
Documentation costs
It’s normal for a car dealership to charge for administrative paperwork. The cost varies according to the dealership. No matter how small this amount is, you need to add it to your budget because you don’t want surprises in the end.
Final thoughts
A vehicle is the second most expensive thing you can buy, after a house. But it is also a necessity that provides you with the freedom to move around. So, even if you believe that it might not be a viable option for you as an entry-level income earner, you still need to think about getting yourself a car. The best option for you would be getting a pre-owned car. To ensure that you get any surprises later, you have to be thorough in your preparation stage. The cost of buying a used car can be more than you’re prepared to pay for if you don’t consider the hidden costs. So, use the above checklist to map out how much the charges when buying a car are.
