5-Year Actual Cost of Owning A Vehicle With Below Prime Auto Loans

As tax season comes to an end, you may be one of those lucky people with a few extra refund dollars coming your way from Uncle Sam. You may even be looking at your old car and thinking that it’s time to trade it in for a new one. Whether you’re a first time buyer, your car is on its last leg or you just want something a little shinier, the car shopping process can be very difficult.

Not only do you have to decide what car is most suitable for your lifestyle, but you also have to decide – more importantly – what vehicles you can actually afford. If you are one of the 43% of Americans dealing with what the industry is calling “bad credit,” you may be asking yourself, which car can I really afford?

In the last six months, the average, direct, new car loan at was $23,514, with many loans going to below-prime buyers. As they search for the perfect vehicle, many consumers may only focus on the purchase price of the vehicle ignoring or, more likely, unaware of some of the very significant variable costs that are part of purchasing and maintaining a vehicle. For example, did you know that the minute you drive that new car off the dealership lot, it loses about 11% of its value? And, as you calculate how the final sales price of the vehicle fits into your budget, you may forget to include insurance, which could be around $120 a month (and based on your driving record), not to mention the cost of maintaining that vehicle over its life, including oil changes, tires, registration, fuel and repairs. The list goes on, and it’s up to you to be informed about what these costs are — because it is unlikely that you will ever see them listed on the selling price of the car.

Understand the Costs

At, we know that the best, most empowered buyer is an informed buyer. Understanding all the expenses associated with owning your vehicle can help you budget responsibly and avoid hardship. That’s why we prepared a list that shows the five-year Actual Cost Owning (ACO) of the top 10 best-selling cars in March 2013.

Not all drivers are the same, nor are their driving habits, all of which can impact cost of ownership. But for the purposes of this list, the five-year cost to own calculations operate under the following assumptions:
· 15,000 miles a year driven annually
· Below-prime credit rating used to calculate direct loan finance rates
· 10% down payment
· Loan term length of 60 months
· Expenses are estimated based on vehicle estimates and national averages
· Fair purchases price of new vehicles with standard features provided by .

In order to come up with the five-year ACO, calculations and cost data were aggregated from various sources across the web to best estimate the cost categories from each vehicle.


Tax costs are calculated from national averages of a combination of state, county and city taxes for each state. An average of 7.2% is used by data provided by Edmunds from the fair market price of each vehicle less down payments. Tax in assumed to be financed and included the loan payment totals.

Down Payment

This amount is calculated as 10% of the fair purchase price of the vehicle. Down payments are considered an out-of-pocket cost and are not included in the amount financed.

Direct Loan Payments

Many people visit the dealership lot, find a car they like and finance the vehicle on the spot. While this may seem like the easiest way to secure a loan, it’s sometimes up to the dealers to choose the lending institution. Another option is a direct loan, which is secured directly through a lending institution, like Knowing your qualifying interest rate prior to arriving at the dealership can save you time, money and provide peace of mind. The direct loan payment total is calculated using a simple interest formula for monthly payments and calculating the total cost over 5 years (60 months).

Maintenance and Repairs

This amount includes the cost of regular maintenance and repairs, excluding regular vehicle warranties. Costs are estimated for four tire replacements; fluids and filter changes, oil changes, and scheduled alignments and tire rotations.

Fees and Registration

This cost probably has the highest degree of variability because it is completely up to individual states to decide fees and registration costs. Fees and registration totals are estimated by national average of costs over 5 years by all 50 states. Again, these costs can vary greatly state by state, but it is still something to consider when budgeting expenses for your vehicle.


Fuel costs are estimated for each vehicle by taking total mileage driven over 5 years (15,000 miles annually) and dividing it by the combined EPA MPG estimates. The total gallons consumed is then multiplied by the average national gas prices for regular unleaded gasoline (AAA Daily Fuel Gauge Report)

Residual Value

Other cost-to-own reports use depreciation to highlight the loss in value of your vehicle as a cost. While this is a “cost,” it does not come directly out of your bank account every month. Since most car owners understand a new car purchase is not an investment, we decided to rather look at residual value. The residual value of a vehicle would be the amount you could sell the car for after 5 years. This value is an estimate based on the average loss in value of new vehicles over a length of 5 years (Edmunds Infographic). This is treated as an asset and provides value to the vehicle, therefore it is subtracted from the total cost-to-own.

Bad Credit Rules To Remember

Don’t let “bad credit” scare you away from your vehicle purchase, but understand that there are many additional costs associated with auto ownership above and beyond a monthly car payment. Below are three rules to remember when you go about your car search.

1. Find Your Rate On A Direct Loan

As discussed above, financing directly through the lender prior to arriving at a dealership has the potential of saving you a couple of percentage points on a loan. Otherwise, researching your qualifying interest rate can help you prepare for your financial obligations before ever setting foot on a dealer lot.

2. Improving Your Credit Score Can Save You BIG!

Sometimes spending a little time planning for your big purchase can yield big savings over the life of your auto loan. Bringing down your credit balances and having a more favorable debt-to-income ratio may also yield you savings of a couple percentage points. And if you are saving for a down payment, don’t get behind with your other bills. Make sure you are always paying your bills on time.

Example: A loan for $22,549 with an interest rate of 10%, rather than 12.9%, will save you $3,923 over the length of your loan

3. A Car Loan Is An investment In Your Credit Future

For many people with a not-so-favorable credit history, having a car loan, and not missing any payments, can help improve their credit. So, in a few years, if you trade in your vehicle and you’ve maintained a good credit standing during your last loan, you will have the opportunity to reduce your interest rate on your next vehicle purchase.