How to Car Buy and Not Tank Your Budget with DB Knows?

"Six in ten drivers expect to purchase or lease another vehicle in the next five years" AAA Car Buying Survey 2023???

According to the AAA Car Buying survey, 61% of car buyers are considering purchasing another vehicle because their current vehicle is no longer reliable or safe to drive (65%) or it needs costly repairs (45%). When considering purchasing a vehicle (new or used), it's important to understand all costs associated with owning and operating a car monthly and annually.???

Ownership Costs???

Ownership costs are based on the vehicle's financing, owning and driving it for five years (this variable is interchangeable), and trading that vehicle in at the end of five years. The total cost of ownership is the sum of the following four cost categories:???

• Depreciation: The difference between what the vehicle was purchased for and eventually sold/traded in for. It is the amount of money "lost" as the vehicle's value diminishes over ownership time.???

• Financing: The amount paid in interest on the loan used to purchase a vehicle.???

• Insurance: The cost of a full-coverage policy for a driver with at least six years of driving experience.??

• Fees: These are all government taxes and fees due upon purchase and fees due each year, such as registration.??

Operating Costs??

The operating costs for a vehicle are the ongoing expenses incurred from the regular day-to-day use of your car.???

• Fuel: The cost of fueling a vehicle, whether gasoline, diesel, or electricity. Fuel prices, fuel economy, miles driven, and driving style (city versus highway) will affect this cost.??

• Maintenance: This includes routine maintenance, unexpected repairs, and tire replacements.??

Additional details about how ownership cost estimates are calculated can be found here, including more information on each category. ??

Electrification?

Electric vehicles (EVs) do not require as much maintenance as gas-powered cars since they do not need oil changes, air-filter replacements, and simple powertrains. However, due to their comparatively high purchase prices, EVs rank second-highest in fees, depreciation, and finance costs (behind only ?-ton pickups), and they have the highest insurance costs of any category.? EVs have the lowest fuel cost of any vehicle type, based on a national average electricity price of 15.9 cents per kilowatt hour (kWh).??

Hybrids?

The cost of driving hybrid cars is second lowest behind small sedans. They benefit from excellent fuel economy, ranking second lowest in fuel costs behind only EVs. They have the third lowest maintenance costs and depreciation and rank near the middle in fees, financing, and insurance costs!?

Let’s Dive Deeper!??

New this year, AAA is adding a new special section to Your Driving Costs, which compares top-selling electric, hybrid, and traditional gas models in four popular vehicle categories. This bonus analysis will give consumers a snapshot of ownership costs for select hybrid and EV models compared to their gas-powered counterparts.?

Hybrid vehicles are a reasonable, affordable option for those who want to try the benefits of electrification due to their low fuel, maintenance, depreciation, and insurance costs. AAA’s analysis shows they are the least expensive to own and operate in each vehicle category. ??

Your Driving Costs Calculator

Budget Tips & Buying Advice with DB

While it may be tempting to trade in or sell your current vehicle because of its high valuation, you will use that equity to purchase a new or used vehicle, which essentially becomes a zero net gain. Here’s how to buy a car without tanking your budget:?

• Typically, three negotiations occur when purchasing a vehicle: the cost of the car, the finance rate, and the trade-in value. Keep each transaction/negotiation separate from the others.??

• The Purchase Cost: Check multiple websites, including the manufacturer, to see what the vehicle sells for in your area. By driving outside of your immediate location and expanding your search area, you could save hundreds of dollars.????

• The Finance Rate: One's credit score is the most significant factor in obtaining a favorable interest rate. Higher credit scores will result in lower interest rates. Obtain pre-approval for an auto loan, determine the highest interest rate you might be charged, and then ask the dealer if they can offer a lower interest rate. If they can, you save money.????

• The Trade-In Value: You must determine the vehicle's condition while evaluating your trade-in. Most used vehicles fall into the "good" or "fair" category, the most common. Check various websites to learn the average trade-in value and determine the value. *Remember, selling a vehicle independently on your own may increase the value you may receive. However, there are safety aspects to consider, such as proper paperwork, bill of sale, etc. Trading the vehicle can often be more straightforward and hassle-free.??

• Before discussing finance rates with the car dealer, obtain pre-approval from your financial institution (e.g., Bank, Credit Union, AAA, etc.). By getting pre-approval, you'll have a threshold of the best lending rate you'll pay. You can use your pre-approval to negotiate if the dealer offers a higher rate. If they offer a lower one, then you have saved money.???

• Websites such as TrueCar, Carfax, Carvana, and CarMax are examples of places to search for a car. Additionally, remember that affinity groups, such as AAA, may offer discounts for being a member. Car buyers should research to understand what a "good deal" is for the vehicle they are interested in. They should also consider expanding their search radius, as the car they seek may be in a nearby city while considering the expense of obtaining the vehicle?

• Remember to factor in an increase in your car insurance payments and a monthly budget due to auto loan interest rates when creating your budget. Once you narrow your vehicle choices down to two or three, it's good practice to call your insurance company and obtain a quote for each vehicle.?

Treat a car purchase as a business decision, not an emotional decision. It's too easy to get caught up in the "new car smell" and lose focus. Consumers need to have a budget and stick to that budget. Additionally, they should buy the car they want, not necessarily the vehicle the salesperson wants them to buy.?“?

Who is DB??

David Bennett (DB) is AAA’s Senior Automotive Manager, with 37 years of experience in the automotive industry. Throughout his career, he has been instrumental in shaping a distinctive customer experience in car repair services for members. He is passionate about educating consumers on crucial car care inquiries and is recognized as AAA's go-to media expert on car-buying and driving costs. His insights have been widely sought after and featured in reputable national and local media outlets, including Forbes, USA Today, and NerdWallet.??

Car Buying Survey Methodology?

The survey was conducted September 21-25, 2023, using a probability-based panel designed to be representative of the U.S. household population overall. The panel provides sample coverage of approximately 97% of the U.S. household population. Most surveys were completed online; consumer without Internet access were surveyed over the phone.?

A total of 1,191 interviews were completed among U.S. adults, 18 years of age or older. The margin of error for the study overall is +/- 4% at the 95% confidence level. Smaller subgroups have larger error margins.?

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