Hidden Costs of Buying a Used Car

We normally feel like we are saving money when buying a used car. While it is considerably cheaper than buying a new car, there are a few charges on top of the sticker price that you won’t be able to avoid. It’s important to be aware of the extra fees you’re likely to incur when purchasing a used car so that you don’t get hit with a nasty surprise. We’ll help you identify the common hidden costs associated with buying a used car so that you’re well-prepared for your next purchase.

Are there additional fees to buying a car? Unfortunately, the answer is yes and you must be aware of these hidden costs so that you are not caught out.

Why the Sticker Price Isn’t the Final Price

The sticker price on a used car is really a starting point. You could even negotiate this price down so that it is lower, but in addition to this, you will unfortunately need to pay for some additional expenses. These can include the dealer's fee, taxes, inspection fee, insurance and financing costs.

Commonly Overlooked Expenses

Here are some of the hidden fees you might overlook:

• Sales tax: This can vary from state to state and country to country, but it can be a significant expense you should be prepared for.
• Dealer fees: Some dealers charge fees for handling the paperwork and brokering a sale.
• Registration and title fees: This is the cost of transferring the car’s title to your name and registering your car with the Department of Motor Vehicles (DMV).
• Inspection fees: It is advised to have a used car looked over by a mechanic before purchasing, and this comes with a cost.
• Loan interest: If you are financing your car, it’s important to account for the total cost of the loan, not just the monthly payments.
• Maintenance: Used cars are more likely to require repairs, and more often than new cars. It’s good to be aware of these costs.
• Insurance: The age of a car can affect the price of your insurance coverage. It’s advisable to get an insurance quote before buying a car.

Pre-Purchase Inspection and Why It’s Crucial

What Does a Pre-Purchase Inspection Cover?

A vehicle pre-purchase inspection is where a mechanic reviews a car in advance of a sale. It can cost between $100 and $300 and should not be skipped.

The mechanic will check for things like the engine, brakes, fluids, tires, transmissions and lights. Likely, they will always find something to be updated, but you should be more concerned if it is a long list or there are major repairs that need to be taken care of. They will inform you of what is crucial and what is low priority.

How Skipping It Can Lead to Expensive Repairs

You need to remember that a car dealer is there to make a sale, so they may not be transparent about any potential issues with a car. If you skip a pre-purchase inspection you can be caught out down the line and have to pay significant costs because of it.

Financing Costs and Hidden Fees

If you are financing your car, you must be aware of interest rates and other hidden costs.

Understanding Loan Interest Rates

In addition to your monthly payments, you will need to pay interest on your auto loan. If you have a longer-term loan, your monthly payments are likely to be lower, but you’ll be paying interest for longer, which can mean you pay more interest over time. You can calculate the total payment using an auto-loan calculator.

If you have a high credit score, the interest rate is likely to be lower, but these rates can change daily. Similarly, a larger down payment could also lower your auto loan’s interest rate. Unfortunately, used cars generally have higher auto-loan interest rates than new cars. It’s advisable to get pre-approval from a bank or credit union before going to buy a used car.

Extra Fees You Might Not Expect

You should also be aware that there may be some hidden fees associated with an auto-loan:

• Processing fees: Be aware of dealership fees. Some lenders may charge for processing your loan application.
• Prepayment penalties: You may be charged a fee if you pay off your loan early as the lender will lose out on their interest income.
• Late payment fees: You are likely to be charged if you are late making payments and this can also affect your credit score.
• GAP insurance: Some lenders require you to pay Guaranteed Asset Protection (GAP) insurance to cover the difference between what you owe and the car’s actual value in case of an accident.
• Loan insurance: This ensures your payments continue if you lose your job, die, or become disabled.
• Car warranty coverage: This can fill in for repair coverage not covered by insurance.

You should be aware of the above as this can greatly affect the total cost of your monthly loan repayments.

Taxes, Registration, and Title Fees

These are costs that you cannot avoid when transferring title to yourself.

How to Estimate These Costs in Advance

These generally differ between states, but you can get an idea of the costs by following these steps:

• Sales tax: This varies by location and it is best to find your state’s sales tax rate online. You can then multiply the car’s price by the sales tax rate to get a final cost.
• Registration fees: You should check your state’s Department of Motor Vehicles (DMV) website, most of which have a calculator for car registration. This is likely to depend on your car’s age, weight and value. There may be additional fees for environmental impact or state-specific charges.
• Title fees: These generally range between $10 and $100, but again it depends on your state. You should check through your state’s DMV website.

Ongoing Maintenance and Repairs

Used cars require more regular maintenance and repairs than new ones, so it’s important to be aware of these costs.

The Importance of a Vehicle History Report

When buying a used car, you must inspect the Vehicle History Report (VHR) first. A VHR is a document that outlines a car’s past, compiling data from insurance companies, repair shops and the DMV. It helps to assess the viability of purchasing a vehicle and will highlight where repairs might be needed. A VHR costs around $30 and it should not be skipped as it could help prevent costly unexpected issues.

Immediate Repairs vs. Long-Term Maintenance

If there are safety issues, you should see to these repairs immediately. This might include fixing brakes, lights and tires. It is not worth skipping on costs where safety is concerned.

Regular preventive maintenance is also advised to ensure the longevity of your car. Neglecting oil changes, tire rotations and maintenance to the brake pads could lead to more expensive repairs in the future, so it’s important to budget for these.

Insurance Costs for a Used Car

In addition to the sales cost, you need to think about your insurance costs.

Factors That Affect Your Premium

What is an insurance premium? It’s the amount of money you pay for your policy. The costs can be affected by many factors:

• Car’s make, age and model: Luxury cars are more expensive to insure. Meanwhile, older cars may be cheaper because they have less value. That said, if they lack safety features, that can drive the cost back up.
• Driver: Both older and younger drivers tend to have higher insurance premiums due to a higher likelihood of accidents. Young men in particular tend to have higher premiums. If the driver has a clean driving record with minimal insurance claims, however, the insurance premium will be lower.
• Previous ownership: If your used car has a history of accidents or insurance claims it could drive up the cost of your premium. Your car’s history will be available through services like AutoCheck or Carfax, which insurers are likely to review when giving you a quote.
• Location: If you live in an area with a high crime rate and heavier traffic than in rural areas, you are likely to have a higher insurance premium.
• Mileage: If your car has higher mileage you are likely to have a higher insurance premium as you are more likely to get into an accident.
• Use: Cars for personal use have lower insurance premiums than those used for business.
• Credit score: A high credit score demonstrates reliability and will lower your insurance premium.

How to Shop for the Best Insurance Rate

You should look into different insurance companies before deciding on your coverage, here are a few tips to help you:

• Assess your needs: Insurance comes in different shapes and sizes. If you are confident with your driving and your car and want to cut costs, you could opt for less comprehensive cover.
• Compare: Make sure to get quotes from multiple insurers so that you get the best deal. It’s a good idea to use price comparison websites to do this quickly and easily.
• Choose payment plans: You can decide between monthly or annual payments to make the best choice for you.
• Read the fine print: It’s important that you don’t glaze over any details, read the fine print so you know what you’re getting and understand what you’re paying for.
• Deductible: If you increase your deductible you can lower your premium. However, it’s important you can afford the higher out-of-pocket cost in the event you need to file a claim.

How to Avoid or Minimize Hidden Costs

It’s important to be prepared so you can minimize any surprise costs.

Smart Negotiation Strategies

Negotiating a sale can be intimidating, but there are a few things you can do to be prepared:

• Research: If you have researched the car’s history and know the market value, it will be harder for the dealer to mess you around.
• Budget: Set a budget and stick to it, don’t let anyone try to talk you into something you can’t afford.
• Price, not payment: Some dealers might want to focus on the monthly payment and not the overall price. They’ll do this to talk you into paying more, make sure to steer them towards a total fee.
• Extras: You can also negotiate for added values as well as the final price. This might be a lower financing rate, service packages or discounts on repairs.

Researching Fees Before Visiting a Dealership

You can avoid any big surprises by researching fees for inspections, insurance and auto loans in advance of visiting the dealership. That way, you will be prepared for all the additional costs involved on top of the car’s sticker price.

Unfortunately, buying a used car is often more expensive than you are expecting. While the sticker price might appear fantastic, you need to factor in the hidden costs that you can’t avoid. By preparing and researching insurance premiums, auto-loan costs and title and registration fees, you will have a better understanding of the final costs.