The Bottom Line: True Costs of Buying a Car

Having a car at college is definitely convenient, but it can also get expensive. Ask yourself this question: Do I really need a car at school? The majority of college campuses are designed for students to walk, bike, or ride the bus. Some colleges don’t permit freshmen to have cars at school. If you have a car before heading off to college, consider leaving it at home or selling it and pocketing the extra cash.

The actual cost of a car is more than just your monthly car payment. Even if you receive a “free” car from a family member, it’s going to cost you. For a better sense of what car ownership entails, review the following list of possible car expenses:

• Down payment: Expect to pay anywhere from 5 percent to 20 percent of the car's purchase price for a down payment. A good rule of thumb is that the more money you can put down, the lower your monthly payments will be.
• Car loans: The amount of your loan will depend on the price of the car, interest rates, your credit rating, and the length of the loan. Keep in mind that as the purchase price rises, so may the length of time it will take you to pay off the loan. Don’t forget to calculate how much you’ll pay in interest before you sign up for a car loan.
• Sales tax: Sales tax rates will vary depending on where you buy the car. You likely will pay state and local taxes on your purchase—even for a used car.
• Driver's license fee: Driver's license fees are set by each state. Check your state government's website for costs and additional information.
• Car registration fee: Car registration fees are set by each state and are based on the type and age of the vehicle. Newer and more expensive cars generally have higher registration fees.
• Car insurance: Most auto insurance policies include auto liability insurance, medical payments coverage, and collision and comprehensive coverage. Insurers determine auto rates based on four factors:
  1. Who is driving the vehicle (people under age 25 pay higher rates than those over 25, and single people pay more than married couples)
  2. Where it is stored
  3. The accident history of the insured driver(s)
  4. The type of vehicle. Certain models of cars are more expensive to insure than others, so it pays to get quotes for the top two or three models you are considering and compare.
• Car maintenance: In addition to registration and insurance, maintaining a car includes money for gas, car washes, repairs, and routine service (such as rotating the tires and changing the oil). Try to keep up to date with needed services in order to keep maintenance costs down.
• Parking fees and tolls: Many campuses require special parking permits that need to be purchased in advance and renewed each year. Parking restrictions, metered parking, and pay lots can make finding a parking spot difficult and expensive. Costs also add up if your routes contain toll roads.

If you find that the benefits of having a car at school outweigh the costs involved, make sure you budget in advance, taking into consideration the costs detailed above. In addition, look for proactive steps you can take to reduce your insurance premiums, and parking fees and tolls.