Buying a car is fun! On the other hand, it can also be a huge pain. If you’re shopping for a new car, you’ve got to look beyond the price tag. You have to consider fuel efficiency, maintenance issues, insurance…the list goes on.

I think most people know this. Still, all of these little factors can be difficult to analyze and keep track of when figuring out the Total Cost of Ownership (TCO) when buying a car. Car Cost Calculator is a website that helps with that.   

Calculating Total Cost of Ownership

The site asks you about all of the factors associated with a car’s TCO, including:

• The price of the vehicle (duh)
• Depreciation rate
• Fuel price
• Monthly mileage
• Fuel efficiency
• Licensing and registration
• Insurance costs
• Maintenance costs

You plug in your estimated info, and it generates a live report, telling you the average cost over 10 years and how much the car will cost you each year. It’s pretty interesting to see the numbers, even if you’re not buying a car. Also helpful–it shows you, in a graph, how much your car depreciates over time. If you’re buying used, this can help you decide what’s a reasonable price to pay for the car.

This would’ve been helpful when I was shopping for a car a few years ago. Of course, you can calculate TCO on your own, but the website makes it really, really simple.

Deciding on New vs. Used

I’ve learned to like buying used. I like the idea of not paying for a car’s depreciation–as long as the car is still in great shape and all. Of course, not everyone agrees with this. Some folks swear by buying new. Either way, there are a few things you should consider when making this decision for yourself.

Maintenance issues: What’s the car’s condition, and what maintenance issues are likely to arise? If its condition seems risky, can you afford to pay for any upkeep?

How old is the car? While I like the idea of buying used, I also don’t want a car that’s incredibly used. Obviously, cars depreciate most after the first couple of years, so it seems to make frugal sense to buy a used car that’s only a few years old. I’m not saying a six year-old car is going to be in terrible, worthless condition. But buying a used car that’s only a few years old is almost like getting a new car for significantly less money.

How long will you have the car? If you’re going to be driving this car into the ground, maybe you do want to buy new. The depreciation hit won’t really matter, since you’re planning to have the car until it stops working, anyway.

Negotiating When Buying a Car

A while back, I read about the Bruce Bueno de Mesquita method for car negotiating. I was intrigued. He says all you have to do is send queries to a handful of dealerships in your area and ask for the best price. In fact, he gives you a script of exactly what to say:

To each of them make the same statement: “Hi, my name is so and so. I plan to buy such and such a car today at 5pm. I’m going to buy it from the dealer who gives me the best price. What is your best price?”

He suggested sending emails, but when I visited a few dealerships last year, I thought, what the hell, and tried it out. I told the salespeople I was basically just visiting and contacting a dealerships to see who would give me the lowest price. One salesman got pissed, told me all I was doing was “pitting salespeople against each other.” Exactly, I thought. That’s kind of the idea. We went to three different dealerships, told them the same thing, and finally got a pretty good price on a used Jetta: $15,000, which was my target price. I accepted, and so far, it’s been a great car. Next time, I’ll probably stick with email, though, as everyone seems to swear by it as a simple, non-confrontational way to get a great deal.

Budgeting When Buying a Car

You should also consider how much you can afford to fork over when buying a car. One solid rule of thumb is the 20/4/10 method. Here’s how it works:

20: Put down at least twenty percent on your new vehicle.
4: Finance for no more than four years.
10: Spend no more than ten percent of your gross income on transportation costs.

I imagine this rule would really be especially helpful when used with your total cost of ownership calculation. Basically, it’s meant to keep you from overspending. It gives you a starting point for calculating a reasonable amount to budget with.

Of course, your mileage may vary with this rule (I punned!). Depending on your situation, the numbers may not be reasonable for you. Or, like me, maybe you prefer not to finance because you hate the idea of having a car payment.

Financial Samurai suggests another rule of thumb: the 1/10th rule. He says you should spend no more than 1/10th your gross annual income on the price of a car. Again, the rule is a starting point for budgeting, but it’s also a measurable way to avoid overspending.

Anyway, these are a few considerations to make when buying a car, based on my own research and experience. Would you add anything to this list, based on your own?