Buying a new car is expensive, and it’s gotten more and more expensive as Americans keep buying bigger SUVs and trucks. But the cost of keeping that car is getting more expensive too.
In fact, a AAA study said the cost of owning a new car is now over $9,200 a year, the highest it’s been since 1950.
“It’s the things we don’t take into account beyond the monthly payment,” said AAA spokesman John Townsend.
It includes the cost of gas, insurance and other costs associated with vehicle maintenance to go with that monthly payment. And part of that is the cost of the loan that many people take out to finance their vehicles.
“Finance charges have soared 24% this year,” said Townsend. He said that charge accounts for 40% of the overall increased cost of owning a brand-new car.
As vehicle prices have gotten more expensive, some people have started taking out six and seven-year car loans to keep the monthly payment at a certain number. It might work out for you in the short-term, but over the long haul Townsend said it’ll hit your wallet hard.
“For every 12 months a car loan is extended, it adds $950 in interest charges,” Townsend said. “If you increase the car note by two years it adds $2,000 in interest costs.”
He said you’ll minimize all that by getting the shortest car loan term you can afford. Other ways to reduce interest charges include shopping around for the best car loan rate ahead of time. He said the dealership or carmaker might not always have the best interest rate, and that you should go to your bank or to a credit union to see if a better one can be had.
He said it’s one more reason why it’s important to keep your credit score as high as possible.
