Published September 02, 2005
| Smart Money
We've got five ways to save on your car expenses, from negotiating with a dealer to cutting your gas bills.
Feel like your car owns you rather than the other way around? Join the club. While personal-finance experts say people's auto expenses shouldn't exceed 20% of their household budget, many folks spend at least 30% on their autos, according to Edmunds.com.
Car ownership entails a whole lot more than just the monthly loan payment — there are also repairs, insurance, gasoline and other costs to consider. Add it all up, and it's enough to have you missing the days when your prime mode of transportation was your bike.
Here are five ways to tap the brakes on your auto expenses.
1. Be a Savvy Buyer
Rule No. 1 is to educate yourself before you walk onto the showroom floor.
The Internet can be a huge help. At Web sites like Edmunds.com and CarsDirect.com, you can find a raft of data, including a particular model's invoice price. That's what the dealer paid for the car (although it may not include all incentives). By comparing this figure to the car's sticker price (or MSRP), you can see just how much room there is to negotiate. Auto Web sites can also give you a rundown of the available cash-back rebates and manufacturer-to-dealer incentives, which often are passed along to buyers with strong negotiating skills.
Once you've narrowed down your selections to a couple of models, try to figure out which one will depreciate more slowly. Obviously, choosing the car that's better able to maintain its value over the years could save you money down the line. Use the same approach when leasing a vehicle, says Michael Kranitz, of LeaseWizard.com and author of "Look Before You Lease." All other things equal, the car with the highest residual value will have the lowest monthly payments.
And don't forget about the ongoing ownership expenses — everything from gas mileage to repairs. Edmunds.com's True Cost to Own calculator breaks out these costs and ranks them compared with other vehicles within the same class.
2. Get the Cheapest Financing Available
The auto-financing department is the dealership's cash cow. Dealers make money by keeping as much of the spread between the interest rate they get from the manufacturers and the rate they offer to their customers. As you might imagine, giving you the most competitive deal is not in a salesperson's best interest.
So do yourself a favor and shop around for financing before you walk onto the car lot. Credit unions and even traditional banks often offer consumers competitive deals. Indeed, you might even want to secure a blank check from the bank to take with you to the dealership. That way, you can put the heat on the dealer to beat the rate you've been given.
If you can't find a competitive auto loan, you might want to consider paying for a vehicle with a home equity line of credit (HELOC), says CarsDirect.com's Mark McCready. In the world of consumer loans, HELOCs typically offer the lowest interest rate. The average HELOC ranges from a quarter to a half a percentage point above the prime lending rate, which currently sits at 4%. On top of that, the interest is tax deductible. The catch is that the rate floats and will rise each time the Fed raises interest rates. An auto loan, on the other hand, offers a fixed rate.
Which loan is best? That depends on your tax bracket as well as your outlook for interest rates. If you think rates will head up sharply (not a widely held belief at this point), the fixed-rate auto loan could be the better choice. For more on home-equity products, click here.
3. Cut Your Auto-Insurance Costs
You've heard it before: If you want to save money on your auto insurance, go to the same company that writes your homeowners or renter's policy. It could save you up to 15% annually. Another way to reduce your monthly premium is to raise your deductible.
If you own an older car, consider dropping your theft and collision insurance, says Edmunds.com consumer-advice editor Phil Reed. That's because the insurer will reimburse you only for the value of your car at the time of the accident or theft. The key is to figure out how much your car is worth and compare it to the portion of your premium that covers theft and collision. If it's not worth a whole lot more than the premiums you're paying, skip it.
To see how much your car is worth, check out Edmunds.com or Kelley Blue Book. And for more tips on how to save on auto insurance, click here.
4. Fix Your Car Only When It's Broken
It can be tempting once you already have your car at the garage for a repair, inspection or oil change to ask for a tune-up. Big mistake. "The whole concept of a tune-up has disappeared," Reed says.
Most functions in new cars are electronically monitored and controlled these days, says Reed. If a warning light doesn't pop up on your dashboard, you probably don't need service. Just stick with the recommendations in your owner's manual. Paying for the extra care won't improve your vehicle's performance — it will just waste your money.
Another myth is that cars need an oil change every 3,000 miles, says Edmunds.com's Reed. Most manufacturers today recommend oil and filter changes every 5,000 or even 10,000 miles.
5. Save on Fuel
We don't need to tell you that gas is expensive. So why spend more than you need to?
Many consumers buy a higher octane fuel for their cars than the manufacturers recommend, thinking that they're doing their engine a favor. The truth is, unless your car requires it, higher octane fuel won't make your car run any better. The octane level is simply the compressed-fuel-to-air mixture. A lower grade ignites faster than a higher grade. For that reason, a lower octane fuel may cause a knocking sound in a high performance vehicle if the gas ignites before the motor is in the right position, says Edmunds.com's Reed. But if you don't have a high-performance engine, you're just throwing money out the window when you buy the more expensive gas.