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What's the Real Cost of That New Car?

by Brian Wong (Dec 28, 2012)

New car buying would be much simpler if the price that on the sticker was the price you paid. Unfortunately it's not that easy, unless you have the cash to pay for the whole thing up front. With almost 90% of new car buyers choosing to lease or take out a loan to get their new cars, it's important to determine the true cost of buying a new car, not just the final price you agree on with the salesperson.

Keep in mind that buying a new car also brings with it a bunch of associated costs (added insurance, maintenance, etc.), but for now we're going to focus on simply paying for the car itself.

MSRP/Invoice — Just the beginning

Negotiating the sticker price way down is just the beginning of getting a great deal on your new car. If you have questions about how to negotiate effectively, check out our tips here and remember, shopping at more dealerships equals more savings!

Also keep in mind that in addition to the car's MSRP, there are license fees and taxes that will be added on as well and rolled into the final selling price of the car. That final price is known as the "out the door price," which is a more accurate measure of what you'll be paying. Because of that, it's also the figure that we would recommend negotiating on, rather than the sticker price.

Now, if you choose to lease your new car, the total cost isn't too hard to figure out:

Down Payment + (Monthly Payment x Term length in months) = Total Cost

However, if you're planning to buy your new car and need a loan...

Figuring out the loan

...that's where things can get tricky.

Car loans have two very important factors to consider: interest rate and term. The interest rate will directly correlate to the amount that you will be paying; a higher interest rate costs you more while a lower interest rate will save you hundreds, maybe thousands. Before shopping around for a new car, it's a good idea to get pre-approved for a car loan which will give you an idea of what kind of interest rate you will receive. You can do this online or at your local bank or credit union. This article has an in-depth explanation of interest rates and how to determine what kind of rates you qualify for.

The second factor is term, which is the amount of time the loan is scheduled for (usually measured in months). A loan with a longer term will have smaller monthly payments, but you will be paying for longer. A shorter term means higher monthly payments, but the car will be paid off sooner.

So how much do I owe?

Calculating your total cost can get very complicated, but we have a tool makes it easy to determine what your total cost will be. On the model pages for every new car, we offer a monthly payment estimate that you can adjust by entering your own information.

Once you know the sticker price, term, interest rate, and the amount you want to put down on the car just enter the numbers and you can see what your total cost will be. If you don't know any of these figures yet, you can play around with the down payment or the term length to see how they change the amount you'll end up paying. One quick note — we suggest putting as much money down on the car possible. Doing so lowers the loan amount and saves money in the long run. It's also worth checking out our rebates and incentives page to see if the model you are looking to buy has any special offers.

We can't overstate the importance of knowing these things before you pull the trigger on that new car. Buying a new car without knowing if you can afford it is shortsighted at best and financially debilitating at worst.

So to summarize: before you buy that car, figure out what you can afford. Try to get pre-approved for a car loan to learn your potential interest rate. Shop at multiple dealers to get your best price (something we make easy here at NewCars.com) and have them competing for your business. And use our calculator to see what the true cost of that new car will be.

Still have questions? Check out our How-To section or ask us on Facebook or Twitter.

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  • Car Buying Guide: A fun and informative step-by-step guide to buying a new car.