Buying a new car? Here’s why it’ll cost you more than ever

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Buying a new car soon? Here's why it's going to cost you more than ever
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Auto financing has raised the price of buying a car to an all-time high, according to a new report. Findings from AAA show that the average yearly cost of owning a vehicle is $9,282, the highest amount since the motor club began tracking such data nearly 70 years ago.

The data comes from AAA’s Your Driving Costs report, which reviewed 45 models across several categories, including fuel prices, insurance rates, depreciation and more. Here are some key findings from the study:

  • People are paying an average of $773.50 a month for their vehicles due to auto financing and other expenses.
  • Finance costs have jumped nearly $200 from $744 to $920. That’s a 24% increase from last year.

Report: Why buying a new car costs more today

Two primary reasons for the increase in auto financing costs were higher vehicle prices and federal interest rates, which were rising at the time, AAA says.

Another factor impacting vehicle owners’ wallets is that more people are taking out 72-month car loans. These loans may make for lower monthly payments, but you end up spending more money overall.

Money expert Clark Howard says that because of depreciation, the amount of interest you pay with a long-term loan isn’t worth it.

“The longest auto loan you should ever take out is 42 months,” Clark says. “If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.”

Here are the average annual costs by new vehicle category based on 15,000 miles driven yearly, according to AAA:

 Average annual costs by new vehicle category

New Vehicle Category Average Annual Cost
Small Sedan $7,114
Hybrid $7,736
Electric $8,320
Small SUV $8,394
Medium Sedan $8,643
Medium SUV $10,265
Large Sedan $10,403
Pickup $10,839

AAA says those figures also include expenses like registration, taxes and license fees. Of course, your new vehicle doesn’t have to be a money pit. Let’s talk about how you can save behind the wheel:

Action plan: 3 ways to save money on your new car

If you’re thinking of buying a new car, here are some ways to save money on your financing, gas and insurance.

1. Pre-arrange your auto financing

Dealers typically charge around 2% more for auto financing. That’s why money expert Clark Howard strongly recommends that you finance your car independent of the dealer. In your research, if you find that the dealer has the best terms, go with the dealer.

  • Consider a mid-level car: Many people want all the bells and whistles, but financing a mid-level model will cost less. Buying the right one can also be profitable for resale value.

2. Save on gasoline

Another easy way to cut down on vehicle expenses is to find cheap gas so you won’t have to pay as much at the pump.

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Clark is a big fan of using gas price apps that use your location to pinpoint where the cheap fuel is. “The difference from one station to another can end up being as much as 30 cents a gallon,” Clark says.

3. Save on insurance

When it comes to auto insurance, doing a little homework on the front end can save you tons of money. Here’s what you want to look for:

Conclusion

The key takeaway here is that car shoppers can’t just look at the sticker price to gauge a vehicle’s true impact on your wallet. Fuel prices, how you maintain your vehicle and other factors all play into your overall car expenses.

Searching for a new vehicle? Here’s how to buy a new car in 5 steps.

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