Buying A Car

Aside from a house, a car if often the largest purchase most people make. In fact, you can always sleep in your car but you can't drive your house (unless it's a motorhome).

It makes sense to take some time and do some math to determine the best car for your lifestyle. It's easy to fall in love with a car, but you also have to be practical. After all, nobody can appreciate a cool car that's in the shop or up on blocks all the time, and if you depend on a car for transportation you need something reliable that won't break the bank.

You are going to look for a car. Along the way, you'll research car reviews, determine how much car you can afford, factor in insurance, gas and repairs, and use a spreadsheet to calculate the cost of owning a car versus taking the bus/walking/bicycling.

First, open and make a copy of my Car Cost Spreadsheet.
You need to be logged in with your cfahs.org to be able to make a copy (File-Make a Copy...). Use it to log all of your costs.


STEP 1: How Much Car?

Unless you have the full amount in your pocket for a car, you're going to have to finance a car.

Use this Car Affordability Calculator to see how much car you can afford. Alternately, if you are being given a car or you've saved up for one, your annual cost from here on is zero.


No matter what car you buy, you have to factor in a sales tax of 7.72% (Denver) plus dealer fees (Document fees shouldn't be more than $100 and try to avoid Dealer fees -- that amount should already be in retail cost, but if all dealers in an area charge them then it might be unavoidable). If you have a trade-in, the tax is based on amount of your purchase minus the trade-in.

For example, let's say you can afford a $7,000 car. You find one at a dealer who is selling a car for $6,000. Taxes would be a little over $460. Documents should be around $100 for a total of just over $6,560. You're still under your limit... so long as you aren't charged bogus dealer fees (or you forget about paying the $500 or so to register your car, not to mention insurance, gas and repairs).




STEP 2: What's Out There?
If you know what you want you can use Craigslist to find a car, particularly if you want to buy from a private party.

If you want to investigate cars
, and especially if you'd consider purchasing from a dealer, take a look at any of the following sites to research cars:

Edmunds
Kelly Blue Book
Cars.com


STEP 3: Is It Any Good?
Wait a second, is your prospective car any good? Does it tend to break down a lot? What have other owners found to be good and bad? Take a look at some review. Use the links from Step 2 (click on Reviews or Research) before you commit to a possible lemon!


STEP 4:
What's It Worth?
Determining the real value of a used or even a new car can be difficult. The following sites can help, but ultimately they are a guide only. You may have to pay more to get what you want.

Black Book Pricing (the "real" cost to dealers)
Edmunds (fair pricing from a buyer's perspective, often the same as Black Book)
NADA (what banks and insurance generally use to value vehicles)
Kelly Blue Book (sellers like this as prices are high, particularly if they quote full retail)

Understand that if you purchase from a dealer, the price is higher (retail). Presumably that's based on their profit and their cost to recondition a car for sale. That's why any fees they charge beyond document fees (not more than $100) are bogus. See Edmunds Fees page.

Once you've found the car you want, use this Car Payment Calculator to calculate your monthly payments if you are taking out a loan. Be sure to change the tax rate to 7.72%.

Put the monthly car payment amount into your calculator from cfahs.org.


STEP 5:
Insurance

I've been with Allstate for my car insurance (and now my house) for over 21 years -- ever since my first car at age 21. My parents had State Farm in California, but even then Allstate was cheaper for me at age 21. I'm considering switching to Progressive, however, as their rates are cheaper!

When looking for insurance, your best bet is to start with your parents. With multiple policies come discounts. But as I said, even with those Allstate was cheaper for me.

Also, you must have a minimum amount of insurance. That's fine for now, but as you have more to lose in an accident (somebody suing and taking your house) you should raise your coverage.

Finally, young drivers by and large have more accidents. Your rates will be higher now and go down as you get older, particularly if you have a clean record with no accidents or tickets.

My suggestion: for today, take a look at Progressive and Geico to get quotes on your chosen vehicle. You do have to give real information, but you're under no obligation to purchase a policy from them. You shouldn't need to give your social security number, but doing so allows for a more accurate quote.

Put the 6-month premium into your Car Cost Calculator!


STEP 6:
Gas, Repairs & Tires
Unless it's a brand new car covered by warranty, your car will require things like gas, oil changes, tires, and repairs. Figure about $1200 for the year ($100/month) not including the cost of gas. Your mileage may vary, as they say, depending how much you use/abuse your vehicle.

For more accurate information on car reparairs, check out the following:

AutoMD Repair Cost Calculator

Bankrate's 10 Best/Worst Cars For Repair Costs
Most Expensive Cars to Repair (Forbes)

How much you spend on gas depends on how much you drive as well as the fuel efficiency of your car. You'll enter both in your calculator, but you can look up the fuel efficiency of your car here:

Fuel Economy Data (from the Government) + Most/Least Efficient
EPA's Green Vehicle Guide
MPG Buddy
Edmund's Fuel Economy & Green Cars

Put the number of miles you expect to drive each week along with the average MPG for your car in your Car Cost Calculator.


What About the Bus?
Even if you pay full fare for local ($79/month) or a regional pass ($176/month) the cost of using the bus for the year is anywhere from a little under $1,000 to a little over $2,000 (see RTD fares).

When I graduated my college, they went through the costs of owning a car versus using the bus to get around and emphasized how much somebody would save by choosing the bus. This was in Boston, with a great subway (the "T") and bus service, but the same applies here.

What could you do with the money you save? Well, you could save for retirement, put away money for your child's college education, or put it away toward a house.



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